Question

Boney 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 $10 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 $15 or processed further for $14 to make the end product industrial fiber that is sold for $59. The beet juice can be sold as is for $42 or processed further for $18 to make the end product refined sugar that is sold for $59. What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?

Answer 1

		Particulars	Beet juice sold as it is @ $ 42	Beet juice is further processed and sold @ $ 59	Difference
		Sales Price	42.00	59	17
		Joint Cost till the point of separation	28.50	28.50	0
		Further processing cost	0	18	18
		Profit per unit	13.50	12.50	-1
		Based on the above computation we can suggest that the Company should sell the beet juice without further process as increase in cost ($ 18) is more than the increase in revenue ($ 17) and it is resulting in a loss of $ 1 per unit
		Computation of Joint Cost
		Particulars	Amount ($)
		Cost of sugar beets	47
		Crushing charges	10
		Total cost	57
		Based on the equal cost assumption the cost allocated to
		Beet fiber (57/2)	28.5
		Beet juice (57/2)	28.5