The management of Dominican Sugar Company is considering whether to process furt
ID: 2579481 • Letter: T
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 $1.43 per pound. Raw sugar is produced in batches of 42,500 pounds by processing 100,000 pounds of sugar cane, which costs $0.36 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.
Revenues, per batch
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.
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
2. Briefly report your recommendations.
Dominican Sugar Company process raw sugar further to produce refined sugar because profits would be .
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.Explanation / Answer
Answer 1 A differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Differential Analysis Sell Raw Sugar (Alternative 1) or Process Further into Refined Sugar (Alternative 2) Mar-24 Sell Raw Sugar Process Further into refined sugar Differential Effect on Income Alternative 1 Alternative 2 Revenue Per batch $60,775 $75,820 $15,045 Cost per batch - Sugar cane $36,000 $36,000 - Further processing cost $0 $20,825 Total Cost per batch $36,000 $56,825 $20,825 Income or loss per batch $24,775 $18,995 -$5,780 Revenue Per batch sell of raw sugar = $1.43*42500 = $60,775 Revenue Per batch sell of refined sugar = (42500/1.25)*$2.23 = $75820 Further Processing cost = =42500*$0.49 = $20825 Answer 2 Dominican Sugar Company should not process raw sugar further to produce refined sugar because profits would be lower by $5780 per batch.
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