 Some companies have products that can be sold at some point during the production process or process further and sold at a higher price. The example I'm showing here is a pineapple. Pineapples can be sold as whole pineapples or they can be processed further into canned, sliced, or pineapple chunks. And sometimes they can be processed even further into underwater houses. So the decision rule we use is that we should process further as long as the incremental revenue from such processing exceeds the incremental processing costs. So let's look at an example. Peter Bjorn and John have a furniture making business. The cost to manufacture an unfinished table is $35. The selling price for the unfinished table is $50. They have unused capacity that can be used to finish the tables and sell them for $60 per unit. For a finished table, direct materials will increase $2 and direct labor will increase $4. Variable manufacturing overhead costs will increase by $3. No increase is anticipated in fixed manufacturing overhead. Okay, so with that data, what should they do? Well, we need to perform the incremental analysis on the situation. Basically, we're looking for the changes to see if the changes in revenue are greater than the changes in costs. Revenues increase $10. Costs only increase $9. So the net increase is $1. So the decision rule in dealing with these types of short-term business decisions is to process further when incremental revenues exceed incremental costs. In our example, finishing the tables would increase operating income.