Sometimes Managers Might Be Indifferent About Processing a Product Further

question 45

Essay

Sometimes managers might be indifferent about processing a product further because the incremental contribution margin is about the same as the contribution margin without further processing. Provide an example of one qualitative factor that might influence a decision to process a joint product beyond the split-off point.

---

Definitions:

Interest Rate

The percentage of a loan amount that is charged to the borrower as interest, usually calculated on an annual basis from the outstanding loan.

Efficient Markets Hypothesis

A financial theory stating that asset prices fully reflect all available information.

Overvalued

A term used to describe a situation in which a security or asset is trading at a price that exceeds its intrinsic value.

Undervalued

A description of an asset or currency whose price is believed to be lower than its intrinsic value.