Question

Sweetness Inc. grows and sells fresh sugarcane and sugar. Each yield of sugarcane gives 3,500 pounds and is referred to as a load. The cost of growing and harvesting the sugarcane is $350 per load. Sweetness Inc. can sell a load to grocers at $0.25 per pound. Alternatively, it could be processed into sugar. The average cost of processing including packaging is $0.15 per pound. The selling price of sugar is $0.75 per pound and requires two pounds of sugarcane. Based on the scenario, which of the following alternatives is most cost effective? (Round your answer to two decimal places.)

a. Sweetness, Inc., should sell sugarcane to the grocers as it provides an advantage of $105.00 per load.
b. Sweetness, Inc., should sell sugarcane to the grocers as it provides an advantage of $525.00 per load.
c. Sweetness, Inc., should process sugarcane into sugar as it provides an advantage of $682.50 per load.
d. Sweetness, Inc., should process sugarcane into sugar as it provides an advantage of $157.50 per load.

Answer 1

To determine the most cost effective alternative, we need to compare the profit from selling sugarcane to grocers with the profit from processing it into sugar. Selling sugarcane to grocers provides an advantage of $525.00 per load, making it the most cost effective option.

Step-by-step explanation:

To determine which alternative is most cost effective, we need to compare the profit from selling sugarcane to grocers with the profit from processing it into sugar. Let's calculate the profit for each alternative:

Selling sugarcane to grocers: Selling price per load = $0.25 x 3500 lbs = $875. Cost of growing and harvesting = $350. Profit = Selling price - Cost = $875 - $350 = $525.

Processing sugarcane into sugar: Selling price per load of sugar = $0.75 x 1750 lbs = $1312.50. Cost of growing and harvesting = $350. Cost of processing = $0.15 x 3500 lbs = $525. Profit = Selling price - Cost of growing and harvesting - Cost of processing = $1312.50 - $350 - $525 = $437.50.

Therefore, the most cost effective alternative is option b. Sweetness, Inc., should sell sugarcane to the grocers as it provides an advantage of $525.00 per load.