Exercise 26-6 Top Gear Bikes could sell its bicycles to retailers either assembl
ID: 2454195 • Letter: E
Question
Exercise 26-6 Top Gear Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $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. Top Gear 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. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.) Sell Process Further Net Income Increase (Decrease) Sales per unit $ $ $ Costs per unit Materials Labor Variable overhead Fixed overhead Total $ Net income per unit $ $ $ (b) Should Top Gear sell or process further?
Explanation / Answer
net income will increase by $ 11 per bike
yes,bike should be process further as net income is increased .
Sell Process further Increase/(decrease) selling price 400 450 50 less: Direct material 150 155 (5) Direct labor 70 90 (20) Variable overhead 49 63 [90*.70] (14) Fixed overhead - - - net income 131 142 11Related Questions
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