Sandhill has unused productive capacity that is expected to continue indefinitely: management has concluded that some of this capacity could be used to assemble the bikes and sell them at $491 each. Assembling the bikes will increase direct materials by $5 per bike and direct labor by $10 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Sandhill Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows.
Direct materials
$147
Direct labor
70
Variable overhead (70% of direct labor)
49
Fixed overhead (30% of direct labor)
21
Manufacturing cost per unit
$287
The unassembled bikes are sold to retailers at $451 each.
Sandhill has unused productive capacity that is expected to continue indefinitely: management has concluded that some of this
capacity could be used to assemble the bikes and sell them at $491 each. Assembling the bikes will increase direct materials by $5 per
bike and direct labor by $10 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.
Transcribed Image Text:Sandhill Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $147 Direct labor 70 Variable overhead (70% of direct labor) 49 Fixed overhead (30% of direct labor) 21 Manufacturing cost per unit $287 The unassembled bikes are sold to retailers at $451 each. Sandhill has unused productive capacity that is expected to continue indefinitely: management has concluded that some of this capacity could be used to assemble the bikes and sell them at $491 each. Assembling the bikes will increase direct materials by $5 per bike and direct labor by $10 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.
Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign
preceding the number eg -45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts.)
Net Income
Process
Increase
Sell
Further
(Decrease)
Total
Sales per unit
Materials
Labor
Variable overhead
Fixed overhead
Costs per unit
%$4
Net income per unit
Should Sandhill sell or process further?
Sandhill Bikes should
%24
Transcribed Image Text:Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign preceding the number eg -45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts.) Net Income Process Increase Sell Further (Decrease) Total Sales per unit Materials Labor Variable overhead Fixed overhead Costs per unit %$4 Net income per unit Should Sandhill sell or process further? Sandhill Bikes should %24
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