King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of 1,950 bicycles per month are shown in the following table:
Variable manufacturing per unit | $223.00 |
Total fixed manufacturing | $273,000 |
Variable nonmanufacturing per unit | $67.00 |
Total fixed nonmanufacturing | $271,050 |
KCSB expects to produce and sell 2,200 bicycles per month in the coming year. The bicycles sell for $580 each.
An outside contractor makes an offer to assemble 900 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 $170 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 900 bicycles assembled by the outside contractor, and its variable nonmanufacturing costs for th0se 900 bicycles would be cut by 55%.
KCSB's marketing manager thinks that it could sell 75 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 $4,800 per bicycle and variable nonmanufacturing costs of $250 per bicycle.
If KCSB accepts the proposal, it would be able to save $27,300 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.)
Given facts:-
2 options: Make or Buy
IF THEY MAKE:
KCSB - 1950 bicycles per months. expenses
Variable manufacturing per unit | $223.00 |
Total fixed manufacturing | $273,000 |
Variable nonmanufacturing per unit | $67.00 |
Total fixed nonmanufacturing | $271,050 |
wants to sell 2200 bicycles per month, @ 580/ bicycle
IF THEY BUY:
outsider 170/Bicycles, expenses
Variable manufacturing per unit | drop by 40% |
Total fixed manufacturing | save $27,300 |
Variable nonmanufacturing per unit | drop by 55% |
Total fixed nonmanufacturing | unchanged |
Calculation:
MAKE:
Variable Manufacturing cost : $223.00 X 2200 = $ 490600
Total Fixed Manufacturing cost : = $ 273000
Variable nonmanufacturing cost: $67.00 X 2200= $ 147400
Total fixed non manufacturing cost: =$ 271050
Total cost incurred for making the bicycle :$ 1,182,050
BUY:
Variable Manufacturing cost : ($223.00- 89.2)= 133.8 or 134 X 2200 = $ 294800
Total Fixed Manufacturing cost : (273000- 27300) = $ 245700
Variable nonmanufacturing cost: ($67.00- 36.85)=30.15 or 30 X 2200= $ 66000
Total fixed non manufacturing cost: =$ 271050
Total cost incurred for buying the bicycle : $ 8,77,550
Difference ($1,182,050 - $8,77,550) = $3,04,500
If KCSB is buying the bicycles from outsider then they would be saving on $3,04,500 per month.
Make sure you understand the two alternatives. The "make" means that KCSB assembles and ships all...
Make sure you understand the two alternatives. The "make" means that KCSB assembles and ships all of its regular bicycles.The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to assemble and ship specialty racing bicycles.TIP: Ignore revenues from regular bike sales - they will be the same under both alternatives and are therefore common costs that can be ignored.______________________________________________________ King City Specialty Bikes (KCSB) produces high-end bicycles....
Make sure you understand the two alternatives. The "make" means that KCSB assembles and ships all of its regular bicycles. The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to assemble and ship specialty racing bicycles. TIP: Ignore revenues from regular bike sales - they will be the same under both alternatives and are therefore common costs that can be ignored. ______________________________________________________ King City Specialty Bikes (KCSB)...
Make sure you understand the two alternatives. • The "make" means that KCSB assembles and ships all of its regular bicycles. • The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to assemble and ship specialty racing bicycles. • TIP: Ignore revenues from regular bike sales - they will be the same under both alternatives and are therefore common costs that can be ignored. King City Specialty...
Make sure you understand the two alternatives. The "make" means that KCSB assembles and ships all of its regular bicycles. The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to make and sell specialty racing bicycles. TIP: The analysis can be simplified by ignoring all irrelevant tiems - the revenue and the costs for the bicycles that are not being outsourced. Instead, just focus on 1) the...
Make sure you understand the two alternatives. The "make" means that KCSB assembles and ships all of its regular bicycles. The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to make and sell specialty racing bicycles. TIP: The analysis can be simplified by ignoring all irrelevant tiems - the revenue and the costs for the bicycles that are not being outsourced. Instead, just focus on 1) the...
Make sure you understand the two alternatives. • The "make" means that KCSB assembles and ships all of its regular bicycles. • The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to make and sell specialty racing bicycles. all irrelevant tiems - the revenue and the costs for the bicycles that are not being outsourced. Instead, just focus on 1) the make versus buy costs of the...
Make sure you understand the two alternatives. The "make" means that KCSB makes, assembles, and ships all of its bicycles. The "buy" means that KCSB makes, assembles, and ships some of its bicycles, makes some of its bicycles and pays another firm to assemble and ship them, and uses idle resources to make and sell specialty racing bicycles ______________________________________________________ King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of...
The "make" means that KCSB assembles and ships all of its regular bicycles. The "buy" means that KCSB pays another firm to assemble and ship some of its regular bicycles and uses the freed-up resources to make and sell specialty racing bicycles. TIP: The analysis can be simplified by ignoring all irrelevant tiems - the revenue and the costs for the bicycles that are not being outsourced. Instead, just focus on 1) the make versus buy costs of the outsourced...
King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of 1,800 bicycles per month are shown in the following table: Variable manufacturing per unit $248.00 Total fixed manufacturing $232,200 Variable nonmanufacturing per unit $54.00 Total fixed nonmanufacturing $262,800 KCSB expects to produce and sell 2,100 bicycles per month in the coming year. The bicycles sell for $580 each. An outside contractor makes an offer to assemble 900 of KCSB's...
King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of 2,200 bicycles per month are shown in the following table: Variable manufacturing per unit $221.00 Total fixed manufacturing $239,800 Variable nonmanufacturing per unit $59.00 Total fixed nonmanufacturing $301,400 KCSB expects to produce and sell 2,400 bicycles per month in the coming year. The bicycles sell for $590 each. An outside contractor makes an offer to assemble 900 of KCSB's...