A sell$-$or$-$process further decision involves deciding whether to:

multiple choice $1$

Accept a special order for a price lower than normal

Continue a product line or eliminate it

Sell a product as is or continue to refine it

Produce a product in$-$house or outsource it

Knowledge Check $02$

Potomac Backpacks, Incorporated manufactures regular backpacks. The company is considering processing these backpacks further to produce hiking backpacks. A summary of the expected costs and revenues for both of these options follows:

Activity Ordinary Backpacks Hiking Backpacks

Estimated sales price $ $50$ $ $75$

Estimated manufacturing cost per unit

Direct materials $ $1520$

Direct labor $10$ $ $15$

Variable manufacturing overhead $510$

Fixed manufacturing overhead $55$

Unit manufacturing cost $ $35$ $ $50$

Additional development cost $8,000$

If the company can sell $8,000$ units of either product, what is the expected incremental profit or loss from processing the backpacks further?

multiple choice $2$

$$72,000$

$$65,000$

$($$$15,000)$

$$20,000$

Knowledge Check $03$

Which of the following should be ignored when deciding whether to sell a product as is or process it further?

multiple choice $3$

The cost incurred in producing the product so far

The cost of processing products further

The revenue from processing products further

The opportunity cost of resources needed to process products further

Knowledge Check $04$

Which of the following is the decision rule of a sell$-$or$-$process$-$further decision?

multiple choice $4$

A product should be processed further if the incremental revenue from processing it further exceeds the incremental cost

A product should be processed further if the total revenue from processing it further exceeds the total manufacturing cost

A product should be processed further if there is an increase in revenue from processing it further

A product should be processed further if the total cost of processing it further exceeds the incremental revenue

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