Question
King City Bikes (KCB) produces bicycles. Costs to manufacture and market the bicycles at last year's volume level of 2,000 bicycles per month are shown
King City Bikes (KCB) produces bicycles. Costs to manufacture and market the bicycles at last year's volume level of 2,000 bicycles per month are shown in the following table:
Variable manufacturing per unit: $258
Fixed manufacturing per month: $226,000
Variable nonmanufacturing per unit: $57
Fixed nonmanufacturing per month: $260,000
KCB expects to produce and sell 2,250 bicycles per month in the coming year. The bicycles sell for $650 each.
An outside contractor makes an offer to assemble KCB's bicycles and ship them directly to KCB's customers as orders are received from its sales force. It will charge KCB $170 per bicycle. KCB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship them. If KCB accepts the offer, its variable manufacturing costs would be reduced by 45%, and its variable nonmanufacturing costs would be cut by 55%. In addition, it would be able to save $22,600 of fixed manufacturing costs; fixed nonmanufacturing costs would be unchanged.
KCB's marketing and production managers think that the idle resources could be used to produce and sell 75 racing bicycles, each with an estimated $750 contribution margin and no additional fixed costs.
REQUIRED [Note: Round unit cost computations to the nearest cent]
What is the difference in KCB's monthly costs between accepting the proposal and rejecting the proposal? (Note: If the costs of accepting the proposal are less than the costs of rejecting it, enter the difference as a positive number; if the accept costs are more than the reject costs, enter the difference as a negative number.)
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