Nichols Corporation is trying to decide whether to sell its carpet-quality thread or to manufacture the carpets itself.Under which of the following conditions should Nichols sell its thread?
A)The incremental revenue from further processing is less than the incremental costs.
B)The incremental revenue from further processing is greater than the incremental costs.
C)The incremental cost from further processing is less than the cost of manufacturing the thread.
D)The incremental cost from further processing is greater than the cost of manufacturing the thread.

Question

Quizplus · Accepted Answer

If the incremental revenue from further processing (i.e., manufacturing carpets) is less than the incremental costs, then Nichols Corporation should sell its carpet-quality thread because it would be more profitable to do so. In other words, if the cost of manufacturing carpets is greater than the revenue generated from selling those carpets, then it would be more cost-effective to sell the thread instead of making the carpets. Therefore, option A is the best choice.

Nichols Corporation Is Trying to Decide Whether to Sell Its