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Hill co. Can further process product o to produce product p. Product o is currently selling for $60 per pound and costs $42 per pound to produce. Product p would sell for $82 per pound and would require an additional cost of $13 per pound to produce.

Answer :

The Hill Co. should not further produce Product P from Product P.

We need to calculate the incremental cost and incremental revenue of producing P to understand the profit or loss margin.

Incremental revenue = Selling product of P - Selling product of O

Incremental revenue = 82 - 60

Performing subtraction

Incremental revenue = $22

Incremental cost = Cost of producing O - Cost of producing P

Incremental cost = 42 - 13

Performing subtraction

Incremental cost = $29

It is clear that incremental cost is more than incremental revenue, so Hill Co. should not continue the production.

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