Chavez could sell its tables to customers either assembled or unassembled. The cost of an unassembled table is as follows.

Direct materials $150

Direct labor 70

Variable overhead (70% of direct labor) 49

Fixed overhead (30% of direct labor) 21

Manufacturing cost per unit $290

The unassembled tables are sold to customer at $450 each.

Chavez 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 tables and sell them at $495 each. Assembling the tables will increase direct materials by $5 per table, and direct labor by $10 per table. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the tables.

Instructions

1. Prepare an incremental analysis for the sell-or-process-further decision.

2. Should Chavez sell or process further? Why or why not?