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:

Question Content Area

1. differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2).

Line Item Description	Sell Raw Sugar (Alternative 1)	Process Further into Refined Sugar (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per batch	$Revenues, per batch	$Revenues, per batch	$Revenues, per batch
Costs, per batch	Costs, per batch	Costs, per batch	Costs, per batch
Profit (loss), per batch	$Profit (loss), per batch	$Profit (loss), per batch	$Profit (loss), per batch

Question Content Area

2. Dominican Sugar Company

shouldshould not

not process raw sugar further to produce refined sugar because profits would be

increasedreduced

by $5,880 per batch.