Assignment:
King City Specialty Bikes (KCSB) produces high-end bicycles. The unit costs to manufacture and market the bicycles at last year's volume level of 1, 900 bicycles per month are shown in the following table:
KCSB expects to produce and sell 2, 200 bicycles per month in the coming year. The bicycles sell for $560 each.
KCSB receives a proposal from an outside contractor who, for $165 per bicycle, will assemble 800 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% for the 800 bicycles assembled by the outside contractor, and variable nonmanufacturing costs for the 800 bicycles would be cut by 55%.
KCSB's marketing manager thinks that it could sell 80 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 $450 per bicycle.
If KCSB accepts the proposal, it would be able to save 5% of fixed manufacturing costs; fixed nonmanufacturing costs would be unchanged.
What is the difference in KCSB's monthly costs between accepting the proposal and rejecting the proposal?