Donkey Bikes could sell its bicycles to retailers eitherassembled or unassembled

Question

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 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 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

Explanation / Answer

Incremental Analysis Selling Price of Assembledbikes 450.00 Direct Material 155.00 Direct Labor 90.00 Variable Overhead 63.00 Fixed Overhead 21.00 329.00 UnitContribution 121.00 Current Scenario Selling Price ofUnassembled bikes 400.00 Direct Material 150.00 Direct Labor 70.00 Variable Overhead 49.00 Fixed Overhead 21.00 290.00 UnitContribution 110.00 Selling the Assembled bikesincreases the Unit Contribution Hence , they should process further & sell.

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