The management of Jamaican Sugar Company is considering whether to process furth
ID: 2560073 • Letter: T
Question
The management of Jamaican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.17 per pound, and raw sugar can be sold without further processing for $1.22 per pound. Raw sugar is produced in batches of 43,200 pounds by processing 108,000 pounds of sugar cane, which costs $0.3 per pound of cane. Refined sugar will require additional processing costs of $0.46 per pound of raw sugar, and 1.2 pounds of raw sugar will produce 1 pound of refined sugar.
Required:
1. Prepare a differential analysis as of January 30 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). If required, do not round interim calculations.
Differential Analysis Sell Raw Sugar (Alt. 1) or Process Further into Refined Sugar (Alt. 2) January 30 Sell Raw Sugar (Alternative 1) Process Further into Refined Sugar (Alternative 2) Differential Effect on Income (Alternative 2) Revenues, per batch $ $ $ Costs, per batch Income (Loss), per batch $ $ $Explanation / Answer
Solution :- Differential Analysis
Conclusion :- Jamaican Sugar Company should process further raw sugar into refined sugar because the income of Jamaican Sugar Company will rise / increase by $ 5544. (Alternative 2 should be selected i.e., Raw sugar should be processed into the refined sugar).
Particulars Sell Raw Sugar (Alternative 1) Process further raw sugar into Refined Sugar (Alternative 2) Differential effect on the income (Prefer Alternative 2) Reveneue per batch 52704 (1.22 * 43200) 78120 (2.17 * 43200 * 1 / 1.20) 25416 (78120 - 52704) Cost per batch 32400 (0.30 * 108000) 52272(0.46 * 43200 + 32400) 19872 (52272 - 32400) Income (Loss), per batch 20304 (52704 - 32400) 25848 (78120 - 52272) 5544 (25416 - 19872)Related Questions
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