Question

Sohr Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $47 to buy from farmers and $33 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 $30 or processed further for $35 to make the end product industrial fiber that is sold for $105. The beet juice can be sold as is for $65 or processed further for $45 to make the end product refined sugar that is sold for $105.

How much more profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar?

$(4)

$31

$(160)

$50

Answer 1

1) Calculation of cost of processing of one batch of sugar beets.

Particulars	Amount ($)
Purchasing cost of sugar beets	47
Processing cost of sugar beets	33
Total cost for one batch of sugar beets	80

2) Situation one: If product is sold without further processing.

Particulars	Amount($)
Sale of immediate products
Beet fiber	30
Beet Juice	65
Total selling price	95
Less: Cost (calculated above)	80
Profit	15

3) Situation two: If product is further processed and sold

Particulars	Amount($)	Amount($)
Sale after processing
Beet fiber		105
Beet Juice		105
Total selling price		210
Less: Cost (calculated in 1)		80
Less: Additional cost for further processing
Beet fiber	35
Beet juice	45	80
Profit (210-80-80)		50

Hence, it is advisable to further process the product. Sohr corporation can make profit of $50 on each batch of product. Which is $35 more than the profit if the product is sold before further processing.