Question 4 Loh 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 The unassembled bikes are sold to retailers at $400 each. Loh 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 $440 each. Assembling the bikes will increase direct materials by $10 per biked, 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. Instructions (a) Prepare an incremental analysis for the sell-or-process-further decision. (b) Should Loh Gear sell or process further? Why or why not?

Question 4 Loh 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 The unassembled bikes are sold to retailers at $400 each. Loh 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 $440 each. Assembling the bikes will increase direct materials by $10 per biked, 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. Instructions (a) Prepare an incremental analysis for the sell-or-process-further decision. (b) Should Loh Gear sell or process further? Why or why not?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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not graded Sell or Process FurtherJensen Manufacturing Company makes a partially completed assembly unit that it sells for $44 per unit. Normally, 38,000 units are sold each year. Variable unit cost data on the assembly are as follows: Direct material $10 Direct labor 8 Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $51 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $225,000. Prepare an analysis showing whether Jensen should process the assemblies further.Use a negative sign with answer to only indicate a loss from processing assemblies further; otherwise do not use negative signs with your answers. Sell of Process Further Differential Analysis Differential revenue…
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