Knowledge Check 01 A sell-or-process further decision involves deciding whether to: Accept a special order for a price lower than normal O Continue a product line or eliminate it Sell a product as is or continue to refine it O Produce a product in-house or outsource it Knowledge Check 02 Potomac Backpacks, Inc. manufactures regular backpacks. The company is considering processing these backpacks further to produce hiking backpacks. A summary of the expected costs and revenues for both of these options follows: Activity Estimated sales price Estimated manufacturing cost per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit manufacturing cost Additional development cost Ordinary Backpacks $ 50 Hiking Backpacks $ 75 $ 15 20 10 $ 15 5 10 5 5 $ 35 $ 50 $8,000 If the company can sell 8,000 units of either product, what is the expected incremental profit or loss from processing the backpacks further? $72,000 $65,000 ($15,000) $20,000 Knowledge Check 03 Which of the following should be ignored when deciding whether to sell a product as is or process it further? The cost incurred in producing the product so far The cost of processing products further The revenue from processing products further The opportunity cost of resources needed to process products further Knowledge Check 04 Which of the following is the decision rule of a sell-or-process-further decision? A product should be processed further if the incremental revenue from processing it further exceeds the incremental cost A product should be processed further if the total revenue from processing it further exceeds the total manufacturing cost A product should be processed further if there is an increase in revenue from processing it further A product should be processed further if the total cost of processing it further exceeds the incremental revenue