LEARNING CASE: AFIYA BIKES Afiya Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials RM150 Direct labor 70 Variable overhead (70% of direct labor) 49 Fixed overhead (30% of direct labor) 21 Manufacturing cost per unit RM290 The unassembled bikes are sold to retailers at RM450 each. Afiya 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 RM495 each. Assembling the bikes will increase direct materials by RM5 per bike, and direct labor by RM10 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 Afiya sell or process further? Why or why not? QUESTION 1 Skyhigh Company is in the process of setting a selling price for its newest model stunt kite, the Looper. The controller of Skyhigh estimates variable cost per unit for the new model to be as follows: Direct materials $15 Direct labor 8 Variable manufacturing overhead 4 Variable selling and administrative expenses 5 $32 In addition, Skyhigh anticipates incurring the following fixed cost per unit at a budgeted sales volume of 20,000 units: Total Costs - Budget Volume = Cost per Unit Fixed manufacturing overhead $240,000 $12 Fixed selling and administrative expenses 260,000 20,000 13 Fixed cost per unit $25 20,000 Skyhigh uses cost-plus pricing and would like to earn a 10 percent return on its investment (ROI) of $400,000 Instructions Compute the selling price that would provide Skyhigh a 10 percent ROI. QUESTION 1 Skyhigh Company is in the process of setting a selling price for its newest model stunt kite, the Looper. The controller of Skyhigh estimates variable cost per unit for the new model to be as follows: Direct materials $15 Direct labor 8 Variable manufacturing overhead 4 Variable selling and administrative expenses 5 $32 In addition, Skyhigh anticipates incurring the following fixed cost per unit at a budgeted sales volume of 20,000 units: Total Costs - Budget Volume = Cost per Unit Fixed manufacturing overhead $240,000 $12 Fixed selling and administrative expenses 260,000 20,000 13 Fixed cost per unit $25 20,000 Skyhigh uses cost-plus pricing and would like to earn a 10 percent return on its investment (ROI) of $400,000 Instructions Compute the selling price that would provide Skyhigh a 10 percent ROI