Donkey bikes could sell its bicycles to retailers eitherassembled or unassembled. The cost of an unassembled bike isas follows.
DirectMaterials $ 150
DirectLabor 70
Variable Overhead (71% of directlabor) 49
Fixed overhead (30% of directlabor) 21
Manufacturing 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 assemble the bikes andsell them at $450 each. Assembling the bikes will increase directmaterials by $5 per bike, and direct labor by $20 per bike.Additional variable overhead will be incurred at rhe normal ratesbut there will be no additional fixed overhead as a result ofassembling the bikes
Instructions
A. Prepare an incremental analysis for thesell or process further decision
B. Should Donkey sell or process further? Why or Why not?