Question

In a decision to sell or to process further, of what relevance are costs incurred prior to the decision point? Explain your answer.

Answer 1

Answer to question:

Sell-or-process decisions involve the cost-benefit analysis of further processing of a product or service.The sell or process further decision most commonly arises when two or more products are generated by a manufacturing process

When evaluating sell-or-process decisions, it is important to compare the incremental revenue and cost of further processing. Unavoidable costs incurred before any additional processing takes place are not relevant to sell-or-process decisions

Unavoidable costs incurred before any additional processing takes place is irrelevant.

The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue

. For example, if a green widget can be converted into a red widget at an incremental cost of $1.00 per unit, then processing further is a good idea as long as the incremental price gain to be achieved is at least $1.01 per unit

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