Explore BrainMass
Share

Explore BrainMass

    Donkey Bikes - Incremental Analysis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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

    Direct material $150
    Direct Labor 70
    Variable overhead (70% of direct labor) 49
    Fixed overhead (30% of direct labor ) 21
    Manufacturing cost per unit $290

    The unassembled bikes are sold to retailers at $400 each.
    Donkey currently has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity can be used to assemble the bikes and sell them at $450 each. Assembling the bikes will increase direct materials by $5 per bike, and direct labor by $20 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the bikes.
    a) Prepare an incremental analysis for the sell-or-process-further decision.
    b) Should Donkey sell or process further? Why or why not?

    Please provide details for understand the exercise.

    © BrainMass Inc. brainmass.com October 9, 2019, 11:08 pm ad1c9bdddf
    https://brainmass.com/business/business-math/donkey-bikes-incremental-analysis-246025

    Solution Preview

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

    Direct material $150
    Direct Labor 70
    Variable overhead (70% of direct labor) 49
    Fixed overhead (30% of direct labor ) 21
    Manufacturing cost per ...

    Solution Summary

    This solution is comprised of a detailed explanation to prepare an incremental analysis for the sell-or-process-further decision.

    $2.19