Sohr Corporation processes sugar beets that it purchases from farmers. Sugar bee

Question

Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $48 to buy from farmers and $15 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $19 to make the end product industrial fiber that is sold for $60. The beet juice can be sold as is for $43 or processed further for $23 to make the end product refined sugar that is sold for $60.

How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is?

Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $48 to buy from farmers and $15 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $19 to make the end product industrial fiber that is sold for $60. The beet juice can be sold as is for $43 or processed further for $23 to make the end product refined sugar that is sold for $60.

Explanation / Answer

Hi, Please find the calculations as follows: Beet Fiber Sales value after further processing 58 Costs of further processing 19 Benefit of further processing 39 Less: Sales value at split-off point 20 Net advantage (disadvantage) 19 Beet Juice Sales value after further processing 58 Costs of further processing 23 Benefit of further processing 35 Less: Sales value at split-off point 41 Net advantage (disadvantage) -6 Best Fiber should be processed further. Thanks, Aman

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