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Sheridan Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $138
Sheridan Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $138 60 Direct labor Variable overhead (70% of direct labor) 42 Fixed overhead (30% of direct labor) 18 Manufacturing cost per unit $258 The unassembled bikes are sold to retailers at $426 each. Sheridan 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 $473 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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