Carla Vista Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials Direct labor Variable overhead (70% of direct labor) Fixed overhead (30% of direct labor) Manufacturing cost per unit $144 60 42 18 $264 The unassembled bikes are sold to retailers at $436 each. Carla Vista 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 $485 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.
Carla Vista Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials Direct labor Variable overhead (70% of direct labor) Fixed overhead (30% of direct labor) Manufacturing cost per unit $144 60 42 18 $264 The unassembled bikes are sold to retailers at $436 each. Carla Vista 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 $485 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Carla Vista Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows.
Direct materials
Direct labor
Variable overhead (70% of direct labor)
Fixed overhead (30% of direct labor)
Manufacturing cost per unit
$144
60
42
18
$264
The unassembled bikes are sold to retailers at $436 each.
Carla Vista 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 $485 each. Assembling the bikes will increase direct materials by $5 per
bike and direct labor by $10 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional
fixed overhead as a result of assembling the bikes.
Transcribed Image Text:$
Carla Vista Bikes should
Sell
Should Carla Vista sell or process further?
Further
Materials
Costs per unit
Sales per unit
Labor
Variable overhead
Net income per unit
Total
Fixed overhead
(Decrease)
LA
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