Priddy Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $62 from farmers and then crushes the cane in the company's plant at the cost of $18. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $28 or processed further for $13 to make the end product industrial fiber that is sold for $36. The cane juice can be sold as is for $43 or processed further for $23 to make the end product molasses that is sold for $85. Which of the intermediate products should be processed further?
A) Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into molasses
B) Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed into molasses
C) Cane fiber should be processed into industrial fiber; Cane juice should be processed into molasses
D) Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses

Question

Quizplus · Accepted Answer

Processing further should only be considered if the additional revenue from selling the processed product exceeds the additional processing costs. For cane fiber, processing further costs $13 but only increases its value from $28 to $36, a net gain of $8, which is less than the processing cost. For cane juice, processing further costs $23 and increases its value from $43 to $85, a net gain of $42, which exceeds the processing cost. Therefore, only cane juice should be processed further.

Priddy Corporation Processes Sugar Cane in Batches