Question

The decision rule in a sell-or-process-further decision is:

Answer 1

Answer:

The answer is: Incremental processing costs

Explanation:

The decision rule in a sell or process further decision is the choice between selling a product now or process that product more so that more money can be made. This happens a lot in business that process agricultural products. For example, the company should sell corn as it is, or should it process it to make corn oil, or should it even process it a little more to make margarine.

The company will make a decision based on the incremental analysis of whether the additional incremental revenue provided by margarine exceeds all the additional incremental costs of producing margarine.

Production costs are not linear. Variable costs can change if the quantity being produced changes. For instance a company makes 100 chairs so it buys enough wood for the 100 chairs. But if they decide to produce 200 chairs, then they will probably be able to get a discount for buying a larger amount of wood. Fixed costs tend to decrease as the units produced increase until a point were a new machine is needed or new workers must be hired.