Question
King City Specialty Bikes (KCBS) produces high-end bicycles. The unit costs to manufacture and market the bicycles at last year's volume level of 1,950 bicycles
King City Specialty Bikes (KCBS) produces high-end bicycles. The unit costs to manufacture and market the bicycles at last year's volume level of 1,950 bicycles per month are shown in the following chart:
Unit manufacturing costs | ||
Variable | $221 | |
Fixed | 118 | |
Total unit manufacturing costs | $339 | |
Unit nonmanufacturing costs | ||
Variable | 60 | |
Fixed | 142 | |
Total unit nonmanufacturing costs | 202 | |
Total unit costs | $541 |
KCBS expects to produce and sell 2,250 bicycles per month in the coming year. The bicycles sell for $620 each.
KCBS recieves a proposal from an outside ocntractor who, for $165 per bicycle, will assemble 800 bicycles per month and ship them directly to KCBS customers as orders are recieved from KCBS sales force. KCB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship the bicycles. The variable maunfacturing cost would be reduced by 45% for the 800 bicycles assembled by the outside contractor, and variable nonmanufacturing costs for the 800 bicycles would be cut by 55%
KCBS marketing manager thinks that it could sell 75 specialty racing bicycles per month for $6,000 each, and its roduction manager thinks that it could use the idle resources to produce each of these bicycles for variable manufacturing costs of $4, 800 per bicycle and variable nonmanufacturing costs of $250 per bicycle.
If KCBS accepts the proposal, it owuld be able to save 5% of fixed manufacturing costs; fixed nonmanufacturing costs would be unchanged.
What is the difference in KCBS monthly costs between accepting the poposal and rejecting the proposal? (Note: if the cost of accepting the proposal are less than the costs of rejecting it, enter the difference as a postive number; if the accept cost are more than the reject costs, enter as a negative number.)
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