Additional Information

The manufacturing equipment, which originally cost $570,000, has a book value of $451,000, a remaining useful life of 4 years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $75,000 per year.

Baird has the opportunity to purchase for $930,000 new manufacturing equipment that will have an expected useful life of 4 years and a salvage value of $59,600. This equipment will increase productivity substantially, reducing unit-level labor costs by 70 percent. Assume that Baird will continue to produce and sell 23,000 frames per year in the future.

If Baird outsources the frames, the company can eliminate 70 percent of the inventory holding costs.

Required

Determine the avoidable cost per unit of making the bike frames, assuming that Baird is considering the alternatives of making the product using the existing equipment or outsourcing the product to the independent contractor. Based on the quantitative data, should Baird outsource the bike frames?

Assuming that Baird is considering whether to replace the old equipment with the new equipment, determine the avoidable cost per unit to produce the bike frames using the new equipment and the avoidable cost per unit to produce the bike frames using the old equipment. Calculate the increase or decrease in the company's profit if the company uses new equipment.

Assuming that Baird is considering whether to either purchase the new equipment or outsource the bike frame, calculate the impact on profitability between the two alternatives.

Baird Bike Company makes the frames used to build its bicycles. During year 2, Baird made 23,000 frames; the costs incurred follow. Baird has an opportunity to purchase frames for $109 each. Complete this question by entering your answers in the tabs below. Determine the avoidable cost per unit of making the bike frames, assuming that Baird is considering the alternatives of making the product using the existing equipment or outsourcing the product to the independent contractor. Based on the quantitative data, should Baird outsource the bike frames? (Round your answer to 2 decimal places.) Assuming that Baird is considering whether to replace the old equipment with the new equipment, determine the avoidable cost per unit to produce the bike frames using the new equipment and the avoidable cost per unit to produce the bike frames using the old equipment. Calculate the increase or decrease in the company's profit if the company uses new equipment. (Round "Avoidable cost per unit" to 2 decimal places.) Assuming that Baird is considering whether to either purchase or outsource, calculate the impact on profitability between the two alternatives. (Do not round intermediate calculations.)