Paine Corporation processes sugar beets in batches that it purchases from farmers for $72 a batch. A batch of sugar beets costs

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Paine Corporation processes sugar beets in batches that it purchases from farmers for $72 a batch. A batch of sugar beets costs

$11 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 $27 or processed further for $16 to make the end product industrial fiber that is sold for $40. The beet juice can be sold as is for $43 or processed further for $28 to make the end product refined sugar that is sold for $100. Which of the intermediate products should be processed further?

Business

1 answer:

harina [3.8K] · Answer 1 · 2026-03-29T11:53:27+03:00

Answer:

The Beet Juice should undergo additional processing

Explanation:

A business should opt for further processing of a product if the income gained from the split-off point exceeds the costs associated with that further processing.

It’s also vital to understand that all expenses incurred before the crushing stage are considered irrelevant to the decision on further processing.

Product Additional Rev. Further process cost. Net income(loss) ($)

Beet Fiber 40-27 =13 16 (3) See notes

Beet Juice 100- 43 = 57 28 29

It is advisable to further process the beet juice into refined sugar while the beet fiber should not be processed any more. Processing the Beet Juice further will yield an additional profit of $29 per unit while Beet Fiber would lead to a deficit of $(3)

Notes

The net income(loss) is calculated as the difference between income from further processing and the expenses for that processing. The net income(loss) for each product is worked out in the following way:

Beet Fiber = 13- 16 = (3)

Beet Juice = 57 - 28 = 29