Question

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 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 $25 or processed further for $18 to make the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or processed further for $28 to make the end product refined sugar that is sold for $79. What is the financial advantage (disadvantage) for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar rather than not processing that batch at all?

Answer 1

Solution

Determination of financial advantage or disadvantage for the company from processing one batch of sugar beets into the end product industrial fiber and refined sugar rather than not processing the batch at all:

Not processing the batch at all:

Cost of batch of sugar beets $53

Processing cost of batch $18

Total cost of batch of sugar beets $71

• Sale of beet fiber without further processing $25
• Sale of beet juice without further processing $32

Total sale value for one batch of sugar beets $57

Less: cost of batch of sugar beets $71

Loss on sale without further processing is $14

Financial advantage of further processing beet fiber into industrial fiber and beet juice into refined sugar:

Incremental advantage of selling beet fiber as industrial fiber –

Sale value $39

Processing cost $18

Incremental advantage $21

Incremental advantage of selling beet juice as refined sugar –

Sale value of refined sugar $79

Processing cost $28

Incremental advantage $51

Total incremental advantage of selling after further processing -

• Beet fiber $21
• Beet juice $51

Total incremental advantage =$72

Total cost of beet sugar = $71

Financial advantage of further processing = $1

Hence, the batch of sugar beets would earn a loss of $14 if not processed further but sold as beet fiber and beet juice.

The batch of sugar beets would earn a profit of $1 when processed further into industrial fiber and refined sugar.