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

Cane fiber should not be further processed; Cane juice should be further processed

Explanation:

Calculation to determine the intermediate products that should be processed further

Sell as isFurther processing costsSelling price after processingIncremental revenue

Cane Fibre2813368

Can Juice43238542

(28-36=8)

(85-43=42)

Based on the above calculation CANE FIBER SHOULD NOT be processed further reason been that the incremental revenue is lower than further processing costs by the amount of $5(8-13) which may inturn lead to $5 loss if it is processed further.

Based on the above calculation CANE JUICE Cane juice SHOULD be processed further reason been that the incremental revenue is higher than further processing cost by the amount of $19 ( 42-23) which will inturn will increase the profit by the amount of $19 if it is processed further.

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