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Question 2: The food processing industry, as for most process industries, is a common user of process costing. Consider for example the sugar manufacturing
Question 2: The food processing industry, as for most process industries, is a common user of process costing. Consider for example the sugar manufacturing industry. The processes in sugar manufacturing can differ depending on the agricultural product used to produce sugar. When sugar cane is used, the sequence of processes looks something like this: First: Cane Shredding. The sugar cane is shredded into small pieces to facilitate its movement through the milling machine. Second: Milling Machine. The shredded cane is crushed between the rollers in the milling machine to produce the cane juice Third: Heating and adding lime. In this step, the cane juice is heated to concentrate the juice and lime is added to reduce acidity Fourth: Clarification. Impure elements are removed from the juice Fifth: Evaporation and Separation. Here the juice is heated, vacuum is applied, and the liquid is centrifuged to remove the molasses and to produce what is called raw sugar. Sixth: Crystallization. The raw sugar is melted and carbon-filtered to produce the refined sugar Seventh: Drying. The refined sugar is dried and is ready for packaging. Due to the nature of the seven processes, there is a relatively large amount of work-in-process inventory at any point in time. Also, sugar cane and raw sugar commodity prices can be stable for a period but there are periods of high volatility caused by, for example, India's mandate in 2007 to develop ethanol fuel; or the supply/demand imbalance in 1980 which sent prices up. Also, government price supports, import restrictions and quotas affect the price of sugar cane. For example, as part of its development policy, the EU in recent years paid above market rates for sugar from several African, Caribbean, and Pacific countries, many of them former colonies of European countries. Required Should a sugar producer use the FIFO or the weighted average method for the process cost report? Explain your answer.
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