King City Specialty Bikes (KCSB) produces high-end bicycles. The costs to manufacture and market the bicycles at the company's volume of 2,000 units per month are shown in the following table:

King City Specialty Bikes (KCSB) produces high-end bicycles. The costs to manufacture and market the bicycles at the company's volume of 2,000 units per month are shown in the following table Unit manufacturing costs Variable costs Fixed overhead $240 122 Total unit manufacturing costs Unit nonmanufacturing costs S 362 Variable Fixed 60 142 202 564 Total unit nonmanufacturing costs Total unit costs The company has the capacity to produce 2,000 units per month and always operates at full capacity. The bicycles sell for $600 per unit. Required a. KCSB receives a proposal from an outside contractor who will assemble 800 of the 2,000 bicycles per month and ship them directly to KCSB's customers as orders are received from KCSB's sales force. KCSB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship the bicycles. The variable manufacturing costs would be reduced by 40 percent for the 800 bicycles assembled by the outside contractor. KCSB's fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 800 units produced by the outside contractor. KCSB's plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 15 percent. a-1. Calculate the in-house unit cost that must be compared with the quotation received from the outside contractor. Assume the payment to the outside contractor is $130 Unit cost a-2. Should the proposal be accepted for a price (that is, payment to the contractor) of $130 per unit? Yes No