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Question

Deegan. (2016). Financial Accounting . McGraw-Hill Education, Australia

Sturdy Bikes manufactures mountain bikes and road bikes. The per unit data for mountain
bikes and road bikes is as follows:
Mountain Bike
Selling price
\$500
\$1,500
Direct materials
\$100
\$250
Direct labour (at \$20 per direct labour hour)
\$20
\$40
Direct labour hour
1 hour
2 hours
\$30
\$60
\$100
\$100
Required:
1. Sturdy Bikes received an inquiry from Brown Company who has offered to purchase
5,000 units of mountain bikes at \$450 per unit. If Sturdy Bikes accepts this order, it
will need to spend an additional \$20 per unit to inspect each mountain bike due to
additional specifications requested by Brown Company. Assume that the present sales
of Sturdy Bikes will not be affected and there is spare capacity, should Sturdy Bikes
accept the special order? Explain by showing your calculations.
2. Sturdy Bikes can sell the mountain bike for \$600 per unit if it spends another \$150 per
unit to upgrade the bike. If there is spare capacity, should Sturdy Bikes process the
mountain bike further? Explain by showing your calculations.
3. Recently, Sturdy Bikes experienced a reduction in skilled labourers and now has a
maximum of 10,000 direct labour hours available for the period. The market demand
for mountain bikes is 2,000 units and road bikes is 4,000 units. How many mountain
bikes and road bikes should Sturdy Bikes produce? Please show detailed calculations.

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