Answered: The management of Dominican Sugar…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 4PA

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Question

Differential Analysis for Further Processing

The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.20 per pound, and raw sugar can be sold without further processing for $1.40 per pound. Raw sugar is produced in batches of 42,000 pounds by processing 100,000 pounds of sugar cane, which costs $0.35 per pound of cane. Refined sugar will require additional processing costs of $0.50 per pound of raw sugar, and 1.25 pounds of raw sugar will produce 1 pound of refined sugar.

Required:

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).

Differential Analysis
Sell Raw Sugar (Alt. 1) or Process Further into Refined Sugar (Alt. 2)
March 24
	Sell Raw Sugar (Alternative 1)	Process Further into Refined Sugar (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per batch	$	$	$
Costs, per batch
Profit (loss), per batch	$	$	$

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Decision to Sell before or after additional processing

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