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 $2.16 per pound, and raw sugar can be sold without further processing for $1.37 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 $0.49 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 “0”. A colon (:) will automatically appear if required.
2. Briefly report your recommendations.
. 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 “0”. A colon (:) will automatically appear if required.

Differential Analysis
Sell Raw Sugar (Alternative 1) or Process Further into Refined Sugar (Alternative 2)
March 24

1

Sell Raw Sugar
Process Further into Refined Sugar
Differential Effect on Income
2

(Alternative 1)
(Alternative 2)
(Alternative 2)
3
4
5

Explanation / Answer

IF PROCESSED FURTHER Cost of 43500 pound of raw sugar: Raw material $         33,000 (100000*0.33) Additional processing cost $         21,315 (43500*0.49) Total cost $         54,315 Total cost per pound $         1.2486 (54315/43500) Cost of refind sugar per pound: Raw sugar (1.25 pounds*$1.2486/pound) $      1.56078 Additional processing cost(1.25*$0.49) $         0.6125 Total cost per pound of refined sugar $ 2.1732759 A B C=B-A Raw Sugar Refined sugar Defference Sales Price per Pound $1.37 $2.16 $0.79 Cost Per Pound $1.25 $2.17 $0.92 Differential cost of $ 0.92 pound is higher the differential Sales Price of $0.79 per pound RECOMMENDATION: Sell raw sugar without further processing

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