Question

The key to analyzing a sell as is or process further decision is to determine that:

A. opportunity costs exceed sunk costs.
B. incremental revenues exceed incremental costs.
C. differential costs do not exist.
D. all allocated costs are included in the decision.

Answer 1

The key to analyzing a sell as is or process further decision is to determine that:B. Incremental revenues exceed incremental costs.

Explanation:

To analyze a "sell as is or process further" decision, the key consideration is whether incremental revenues exceed incremental costs. This means comparing the additional revenues gained by processing further against the additional costs incurred in the extended process. Option B accurately captures this concept. If incremental revenues surpass incremental costs, it signifies a financially viable decision to process further. This analysis ensures that the decision maximizes profitability by weighing the financial benefits against the added costs.

The other options can be ruled out based on the principles of relevant costing. Opportunity costs (Option A) may be considered, but in this context, the focus is on the financial impact of processing further. Differential costs (Option C) are crucial, but their existence does not negate the need to compare them against incremental revenues. Similarly, including all allocated costs (Option D) might not be relevant if those costs do not change significantly with the decision to process further.

In conclusion, the decision-making process in scenarios like "sell as is or process further" is best guided by the comparison of incremental revenues and incremental costs. This approach ensures a thorough financial analysis, helping organizations make informed choices that align with their overall profitability goals.

Answer 2

The key to analyzing a sell as is or process further decision is to determine that incremental revenues exceed incremental costs. Option B is correct.

Step-by-step explanation:

When making decisions about selling a product as is or investing further, the crucial factor lies in ensuring that the additional revenues generated by further investment surpass the added costs incurred. This concept of incremental analysis focuses on the marginal differences between the two options, allowing for a clear understanding of the profitability of each choice. It disregards sunk costs (costs that have already been incurred and cannot be recovered) and concentrates solely on the future costs and revenues that will change as a result of the decision.

By comparing these incremental revenues and costs, businesses can make informed choices that optimize their financial outcomes and overall profitability.

Correct answer: B. incremental revenues exceed incremental costs.