Answer:
Speedy Bikes
a. Incremental Analysis for the sell-or-process-further decision:
Cost of an Cost an Difference
unassembled bike assembled bike
Alternative 1 Alternative 2 Increment
Sales price of unassembled bike $450 $495 $45
Manufacturing cost per unit $290 $312 (22)
Net operating income $160 $183 $23
b. Speedy should process the bikes further.
c. It will generate an incremental net operating income of $23 per bike.
Explanation:
a) Data and Calculations:
Cost of an Cost an
unassembled bike assembled bike
Direct materials $150 $155
Direct labor 70 80
Variable overhead (70% of direct labor) 49 56 ($80 * 70%)
Fixed overhead (30% of direct labor) 21 21
Manufacturing cost per unit $290 $312
