The unassembled bikes are sold to retailers at 400each

Reference no: EM13614382

Donkey Bikes could sell its bicycles to retailers eitherassembled or unassembled. The cost of an unassembled bike is asfollows. 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 $400each. 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 nthe sell-or-processfurther decision

b. Should donkey sell or process further? why or why not

Reference no: EM13614382

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