Joy is a bike manufacturer. It manufactures both bike components and finished bi
ID: 2477758 • Letter: J
Question
Joy is a bike manufacturer. It manufactures both bike components and finished bike. For a specific type of bikes, the manufacturer can sell the components to an assembly company for $12 per set, or assemble the bikes itself. The finished bikes can be sold for $17 each. Joy's has a total capacity of 500,000 hours, which could be used for both producing bike components and assembling. One capacity hour can be used to produce 30 sets of bike components or to assemble 15 units of bikes. All the related costs for the manufacturing and assembling are listed below. No other costs and tax are considered. The manufacturing overhead cost is fixed and allocated to the units produced based on their production time. We assume that the demand is high enough so that the manufacturing capacity is always utilized fully.
The direct materials, direct labor and manufacturing overhead for each set of bike components are $4.60, $3.00 and $1.00, respectively.
The additional direct materials, direct labor and manufacturing overhead for each unit of assembly are $1.20, $0.50 and $2.00, respectively.
(1) The Joy's executives decide to assemble the bikes themselves instead of selling the components. With the expected sale price of $17 per unit, is this a good decision?
(2) What is the lowest price for the completely assembled (finished) bikes that will be acceptable for the executives’ decision?
(3) The manufacturing overhead cost in (1) and (2) is a fixed cost allocated to each unit. Suppose that 50% of that fixed overhead cost is variable. Please reevaluate your answers in (1) and (2).
Explanation / Answer
1.No, it should produce component as per above calculation .
2 it should be equal to earn a profit equal as in selling component.
15.525
3
3) Again it should produce component only.
Hours available 500,000.00 Component Bikes Production in an Hour 30 15 if sells outside Bikes Sales 12 17 Direct materials 4.6 1.2 Direct labor 3 0.5 Manufacturing overhead 1 2 Assembly cost 8.6 Contribution/profit per unit 3.4 4.7 if the hour is constrained Hours required per unit 1/30 1/15 2 minutes 4 minutes Profit per minute 1.700 1.175Related Questions
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