Problem 4-58 (Algo) Make or Buy (LO 4-4) 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 sanufacturing costs Variable costs Fixed overhead Total unit manufacturing costs Unit nonmanufacturing costs Variable 197 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 $620 per unit. See customers as orders are box, and ship the bicycles fixed non manufacture Required: 6. 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 25 percent 0-1. What in-house unit cost should be compared with the quotation received from the outside contractor? Assume the payment to the outside contractor is $160. 6.2. Should the proposal be accepted for a price (that is, payment to the contractor) of $160 per unit? 40 "H! Next >