Without contract

Per unit
Variable costs
Manufacturing
Non-manufacturing
Total variable costs
Fixed costs
Manufacturing
Nonmanufacturing
Total fixed costs

Number of Bicycles

$
$
$

260
50
310

2,000
2,000

$
$

128
148

2,000
2,000

VC manufacturing cut
VC manufacturing

40%
156

VC nonmanufacture cut
VC non manufacturing

60%
20

Total VC

176

Total cost

Contract
Variable costs:
For the bikes assembled by KCSB
For the bikes not assembled by KCSB
Total variable costs
Fixed costs
Manufacturing [@85% = (1 15%)]
Nonmanufacturing (unchanged)
Total fixed costs

Per unit
$
$

310
176

Number of Bicycles
1,200
800

Total cost

Unit Cost

Part B
Revenue:
From regular bicycles

182

Without
Contract
$

1,260,000 $

Accept
Offer
1,260,000

From racing bicycles

Total revenue

$
$

$
1,260,000 $

704,000
1,964,000

Costs:
Variable costs
From regular bicycles
Payment to supplier
For racing bicycles (manufacturing)
For racing bicycles (marketing)
Total variable cost
Fixed costs
Total cost
Profit

$
$
$
$
$
$
$
$

620,000
620,000
552,000
1,172,000
88,000

512,800
104,000
512,000
22,400
1,151,200
552,000
1,703,200
260,800

Sell regular
sell racing

$
$

630
8,800

cost of production per unit VC manufacture

VC marketing per unit

$
$

6,400
280

Number regular status quo

Number regular offer
Number racing

2000
1200
80

$
$
$
$
$
$
$
$

Total costs
$
$
$

520,000
100,000
620,000

$
$
$

256,000
296,000
552,000

1,172,000

Total costs
$
372,000
$
140,800
$
512,800
$
$
$

217,600
296,000
513,600

1,026,400

Sales revenue
Less variable costs
Manufacturing
Marketing
Total variable cost
Contribution margin
Less fixed costs:
Manufacturing
Marketing
Administrative
Total fixed costs
Operating profit

VC manufacture
Alpha
Beta
Gamma

Product
Product
Alpha
Beta
$
6,500 $
5,300
$
$
$
$

3,900
260
4,160
2,340

60%
70%
60%

VC marketing
Alpha
Beta
Gamma

4%
3%
3%

$
$
$
$

3,710
159
3,869
1,431

Product
Gamma
###
$
$
$
$

3,180
159
3,339
1,961

Total
$ 17,100
$ 10,790
$
578
$ 11,368
$ 5,732
$
$
$
$
$

1,375
732
654
2,761
2,971