E26-6 Top Gear 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 $150 70 49 21 $290 The unassembled bikes are sold to retailers at $400 cach. Top 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 $450 each. Assembling the bikes will increase direct materials by $5 per bike, and direct labor by $20 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 Top Gear sell or process further? Why or why not?

E26-6 Top Gear Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. The unasscmbled bikes are sold to retailcrs at $400 cach. Top 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 $450 each. Assembling the bikes will increase direct materials by $5 per bike, and direct labor by $20 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 Top Gear sell or process further? Why or why not