Scootz could sell its scooters to retailers either assembled or unassembled. The cost of an unassembled scooters is as follows. Direct materials $150 Direct labor 70 Variable overhead (0.70 of direct labor) 49 Fixed overhead (0.30 of direct labor) 21 Manufacturing cost per unit $290 The unassembled scooters are sold to retailers at $450 each. Scootz 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 scooters and sell them at $495 each. Assembling the scooters will increase direct materials by $5 per scooter, and direct labor by $10 per scooter. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the scooters. You are required to: (a) Prepare an incremental analysis for the sell-or-process-further decision. (b) Should Speedy sell unassembled or process further?
Scootz could sell its scooters to retailers either assembled or unassembled. The cost of an unassembled scooters is as follows.
Direct materials $150
Direct labor 70
Variable
Fixed overhead (0.30 of direct labor) 21
The unassembled scooters are sold to retailers at $450 each.
Scootz 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 scooters and sell them at $495 each. Assembling the scooters will increase direct materials by $5 per scooter, and direct labor by $10 per scooter. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the scooters.
You are required to:
(a) Prepare an incremental analysis for the sell-or-process-further decision.
(b) Should Speedy sell unassembled or process further?
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