Reference no: EM132482853
Question - King City Specialty Bikes (KCSB) produces high-end 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 $257.00
Total fixed manufacturing $226,000
Variable non-manufacturing per unit $70.00
Total fixed non-manufacturing $298,000
KCSB expects to produce and sell 2,400 bicycles per month in the coming year. The bicycles sell for $640 each.
An outside contractor makes an offer to assemble 750 of KCSB's bicycles per month and ship them directly to KCSB's customers as orders are received from its sales force. It will charge KCSB $165 per bicycle. KCSB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship the bicycles. If KCSB accepts the offer, its variable manufacturing costs would be reduced by 40% for the 750 bicycles assembled by the outside contractor, and its variable non-manufacturing costs for those 750 bicycles would be cut by 60%. In addition, it would be able to save $22,600 of fixed manufacturing costs; fixed non-manufacturing costs would be unchanged.
KCSB's marketing manager thinks that it could sell 75 specialty racing bicycles per month for $6,500 each, and its production manager thinks that it could use the idle resources to produce each of these bicycles for variable manufacturing costs of $5,400 per bicycle and variable non-manufacturing costs of $300 per bicycle.
REQUIRED - What is the difference in KCSB's monthly costs between accepting the proposal and rejecting the proposal?
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