Prepare incremental analysis for sell-or-process decision

Reference no: EM13257420

Donkey Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows.

DirectMaterials    $150
Directlabor            70
Variable Overhead(70% of directlabor)   49
Fixedoverhead (30% of directlabor)       21
Manufacturingcost perunit                   290

The unassembled bikes are sold to retailers at $400 each.

Donkey currently has unused productive capacity that isexpected to continue indefinitely; management has concluded thatsome of this capacity can be used to nassemble the bikes and sellthem at $450 each. Assembly the bikes will increase directmaterials by $5 per bike, and direct labor by $20 per bike. Additional variable overhead will be incurred at the normalrates,but there will be no additional fixed overhead as a result ofassembling the bikes.

Instructions

a. Prepare an incremental analysis for n the sell-or-process further decision
b. Should donkey sell or process further? why or why not

Reference no: EM13257420

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