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Ivanhoe Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials Direct

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Ivanhoe Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials Direct labor $129 60 Variable overhead (70% of direct labor) 42 Fixed overhead (30% of direct labor) 18 Manufacturing cost per unit $249 The unassembled bikes are sold to retailers at $411 each. Ivanhoe 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 $455 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.

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