The management of Dominican Sugar Company is considering whether to process furt

Question

The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.23 per pound, and raw sugar can be sold without further processing for $1.38 per pound. Raw sugar is produced in batches of 43,500 pounds by processing 100,000 pounds of sugar cane, which costs $0.33 per pound of cane. Refined sugar will require additional processing costs of $0.48 per pound of raw sugar, and 1.25 pounds of raw sugar will produce 1 pound of refined sugar. Required 1. Prepare a differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "O". A colon (:) will automatically appear if required. 2. Briefly report your recommendations.

Explanation / Answer

Note: Here we take input of 100,000 pounds of sugar cane Production under Alterntaive -1 is 43,500 pounds Production under Alterntaive -2 Refined Sugar (43,500/1.25 *1) 34,800 pounds as 1.25 pound of raw sugar product 1 pound of refined sugar DIFFERENTIAL ANALYSIS Alernative -1 Sell Raw Sugar OR Alternative -2 Sell Refined Sugar Alternative -1 Alternative -2 Incremental Income (loss) Sales revenue Raw Sugar (43,500 pounds@1.38 per pound) 60030 Refined Sugar (34,800 pounds @2.23 per pound) 77604 17574 Less: Cost of Sugar cane 33000 33000 0 (100,000 pounds of cane used as input@0.33 per pound) Less: Further processing cost 0 20880 -20880 Refined sugar (43,500 pounds of raw sugar @0.48 per pound) Net Operating income 27030 23724 -3306 Hence, raw sugar should not be processed furtehr , as it will lead to decrease in net operating income by $ 3,306

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