An organization that produces backpacks of standard quality is considering manufacturing high-quality packs. Which of the following costs is most relevant when deciding whether to manufacture the new product?
An organization that produces backpacks of standard quality is considering manufacturing high-quality packs. Which of the following costs is most relevant when deciding whether to manufacture the new product?
When deciding whether to manufacture a new product, the most relevant cost to consider is the incremental costs. Incremental costs are the additional costs that will be incurred if the new product is manufactured, which directly affects the decision-making process. Fixed costs will generally remain the same whether the new product is manufactured or not, while variable and conversion costs may already be factored into current operations. Therefore, incremental costs provide the best insight into the financial impact of producing the high-quality packs.
Shouldn't it be A?