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