Jimbob Co.is considering offering each of the three products the company manufactures at two levels - "Standard" and "Advanced".Currently all products are processed to the "Standard" level and all products manufactured at this level can be sold.Management believes that it will be possible to generate additional sales revenue and profits by further processing some of units of the "Standard" level products to the "Advanced" level.Fixed costs will not change in total.In making the decision whether it should process products further which decision rule should be followed?
A) If there is a positive contribution margin at the "Advanced" level,then process further.
B) If the unit costs at the "Advanced" level are greater than the unit costs at the "Standard" level,do not further process.
C) If the difference in the selling price of units at the "Advanced" level over the selling prices of units at the "Standard" level is greater than the additional unit costs of processing from the "Standard" level to the "Advanced" level,then process further.
D) If the projected selling prices at the "Advanced" level are at least 20% greater than those at the "Standard" level,then process further.

Question

Quizplus · Accepted Answer

The decision to process products further should be based on whether the additional revenue generated from selling at the "Advanced" level outweighs the additional unit costs of processing. Choice A only considers contribution margin, which may not necessarily cover all additional costs. Choice B is too conservative as some additional unit costs may be worth the investment if the increase in selling price is substantial. Choice D sets an arbitrary percentage increase without considering actual costs and revenue. Choice C takes into account both the additional unit costs and the difference in selling prices, making it the best choice.

Jimbob CoIs Considering Offering Each of the Three Products the Company