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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 manufacturing costs
Variable costs	$	240
Fixed overhead		130
Total unit manufacturing costs				$	370
Unit nonmanufacturing costs
Variable		60
Fixed		150
Total unit nonmanufacturing costs					210
Total unit costs				$	580

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.

Required:

a. KCSB receives a proposal from an outside contractor who will assemble 800 of the 2,000 bicycles per month and ship them directly to KCSBs customers as orders are received from KCSBs 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 percent for the 800 bicycles assembled by the outside contractor. KCSBs fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 70 percent for these 800 units produced by the outside contractor. KCSBs plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 25 percent.

a-1. Calculate the in-house unit cost that must be compared with the quotation received from the outside contractor. Assume the payment to the outside contractor is $150.

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