Pharoah Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. $ 168 70 Direct materials Direct labor Variable overhead (70% of direct labor) Fixed overhead (30% of direct labor) Manufacturing cost per unit 49 21 $ 308 The unassembled bikes are sold to retailers at $ 486 each Pharoah 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 $ 533 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. Process Further Net Income Increase (Decrease) Sell Sales per unit $ 486 $ 533 $ 47 Costs per unit Materials 168 173 (5) Labor 70 80 (10) Variable overhead 49 49 0 Fixed overhead 21 0 21 Total 308 302 Net income per unit $ 178 231 53 Should Pharoah sell or process further? Pharoah Bikes should Pharoah Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. $ 168 70 Direct materials Direct labor Variable overhead (70% of direct labor) Fixed overhead (30% of direct labor) Manufacturing cost per unit 49 21 $ 308 The unassembled bikes are sold to retailers at $ 486 each Pharoah 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 $ 533 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. Process Further Net Income Increase (Decrease) Sell Sales per unit $ 486 $ 533 $ 47 Costs per unit Materials 168 173 (5) Labor 70 80 (10) Variable overhead 49 49 0 Fixed overhead 21 0 21 Total 308 302 Net income per unit $ 178 231 53 Should Pharoah sell or process further? Pharoah Bikes should