When a company is considering the possibility of processing their product further to achieve higher sales revenues, the rule is as follows: if incremental revenues exceed incremental costs, then further processing will enhance operational profits.

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This is known as the incremental analysis or incremental cost-benefit analysis approach, where additional costs and revenues are compared to determine whether a particular course of action will result in increased profitability. If the incremental revenue from additional processing exceeds the incremental cost of that processing, then it will enhance operational profits.

When a Company Is Considering the Possibility of Processing Their