Are Firms That Produce Sugar Likely to Incur Transferred-in Costs?

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Cost Management

 

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 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: Clarifying Impure elements are removed from the juice.

 

Fifth: Evaporating and Separating. 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: Crystallising The raw sugar is melted and carbon-filtered to produce the refined sugar.

 

Seventh: Drying. The refined sugar is dried and made 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 of time 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 that 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 a number of African, Caribbean, and . Pacific countries, many of them former colonies of European countries.

Required

1. Are firms that produce sugar likely to incur transferred-in costs? Why or why not?

2. Should a sugar producer use the FIFO or the weighted-average method for the process cost report? Explain your answer.

3. Identify and explain any sustainability issues for the production of Sugar.

4. Identify and interpret the significance of any global issues for the production of sugar.

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