14 Stinehelfer Beet Processors Inc processes sugar beets in

14.

Stinehelfer Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $35 to buy from farmers and $9 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 $25 or processed further for $17 to make the end product industrial fiber that is sold for $37. The beet juice can be sold as is for $45 or processed further for $33 to make the end product refined sugar that is sold for $69. 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?

Garrison 16e Rechecks 2017-12-15

Multiple Choice

$0

($9)

$60

($32)

Solution

Financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling = Additional Revenue from processing further - Cost of processing further

Financial advantage (disadvantage) = (Selling Price of refined sugar - Selling Price of beet juice) - Cost of processing further to refined sugar

Financial advantage (disadvantage) = (69 - 45) - 33
Financial advantage (disadvantage) = 24 - 33
Financial advantage (disadvantage) = - 9

Correct Option - ($9)

Please note cost of $ 35 (to buy sugar beet) & $9 (Crushing cost) is irrelvant for this decision making. as this cost will be incurred whether beet juice is processed further or not
Also Cost of $ 17 is relevant for Beet fiber not for beet juice