Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of suga

Question

Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $44 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 $20 or processed further for $12 to make the end product industrial fiber that is sold for $32. The beet juice can be sold as is for $40 or processed further for $42 to make the end product refined sugar that is sold for $78. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is? rev: 08_07_2013_QC_33489 $(60) $(4) $(14) $(27)

Explanation / Answer

Net Profit/(Loss) seeing by further processing beet juice = Incremental revenue – Incremental cost

1. Incremental Revenue = Selling price by further processing – selling price before further processing

= 78 – 40 = $ 38

2. Incremental cost = cost of further processing = $ 42

Net profit or loss = $ 38 - $ 42 = $ (4)       [LOSS].

The company makes loss of $ 4 by processing the intermediate product beet juice into refined    sugar rather than selling it as is.

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