Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $50 to buy from farmers and $13 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 $18 or processed further for $17 to make the end product industrial fiber that is sold for $62. The beet juice can be sold as is for $45 or processed further for $21 to make the end product refined sugar that is sold for $62. 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

Question

Business

Harley Lowe

4 April, 09:36

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $50 to buy from farmers and $13 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 $18 or processed further for $17 to make the end product industrial fiber that is sold for $62. The beet juice can be sold as is for $45 or processed further for $21 to make the end product refined sugar that is sold for $62. 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

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Answers (1)

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Valery Mitchell · Answer 1

It is more profitable to sell as-is.

Explanation:

Giving the following information:

The beet juice can be sold as-is for $45 or processed further for $21 to make the end product refined sugar that is sold for $62.

The joint costs are a sunk cost, meaning, it will remain constant and is present in both decisions.

We need to calculate the effect on the income of both options.

Sell as-is:

Unitary effect = 1*45 = $45 per unit

Process further:

Unitary effect = 1 * (62 - 21) = $41

It is more profitable to sell as-is.