King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufactur
ID: 2542011 • Letter: K
Question
King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of 2,100 bicycles per month are shown in the following table:
KCSB expects to produce and sell 2,350 bicycles per month in the coming year. The bicycles sell for $640 each.
KCSB receives a proposal from an outside contractor who, for $160 per bicycle, will assemble 750 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 30% for the 750 bicycles assembled by the outside contractor, and variable nonmanufacturing costs for the 750 bicycles would be cut by 60%.
KCSB's marketing manager thinks that it could sell 70 specialty racing bicycles per month for $6,000 each, and its production manager thinks that it could use the idle resources to produce each of these bicycles for variable manufacturing costs of $4,900 per bicycle and variable nonmanufacturing costs of $400 per bicycle.
If KCSB accepts the proposal, it would be able to save 5% of fixed manufacturing costs; fixed nonmanufacturing costs would be unchanged.
REQUIRED [Note: Round unit cost computations to the nearest cent]
What is the difference in KCSB'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.)
i have gotten -28110 as an answer and it was wrong please help
Variable manufacturing per unit $239.00 Total fixed manufacturing $258,300 Variable nonmanufacturing per unit $56.00 Total fixed nonmanufacturing $298,200Explanation / Answer
Revenue From Sell of Racing Bicycles : Units sell [Price- variable manufacturing -variable non manufacturing]
= 70 [6000- 4900 -400]
= 49000
750[56(1-.60)] =16800
If Proposal Is acceted [A] If Proposal Not accepted [B] Difference[B-A] Revenue from sell of racing bicycles - 49000 0 49000 Fixed manufacturing cost 258300 (1-.05) =228760 258300 29540 Payment for asembling 160*750 = 120000 0 -120000 Variable manufacturing cost 750[239(1-.30)] =125475 750*239=179250 53775 variable non manufacturing cost750[56(1-.60)] =16800
750*56=42000 25200 Total cost 442035 479550 37515Related Questions
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