Campbell Bike Company makes the frames used to build its bicycles During year 2, Campbell made 23,000 frames the costs incurred follow Campbell has an opportunity to purchase frames for $111 each Additional Information The manufacturing equipment, which originally cost $540,000, has a book value of $490,000, a remaining useful life of 5 years, and a zero salvage value If the equipment is not used to produce bicycle frames, it can be leased for $68,000 per year Campbell has the opportunity to purchase for $970,000 new manufacturing equipment that will have an expected useful life of 5 years and a salvage value of $55,000 This equipment will increase productivity substantially, reducing unit level labor costs by 70 percent Assume that Campbell will continue to produce and sell 23,000 frames per year in the future If Campbell outsources the frames, the company can eliminate 90 percent of the inventory holding costs Required Determine the avoidable cost per unit of making the bike frames, assuming that Campbell 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 Campbell outsource the bike frames Assuming that Campbell 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 Campbell is considering whether to either purchase the new equipment or outsource the bike frame, calculate the impact on profitability between the two alternatives Unit level materials costs (23,000 units x $48) Unit level labor costs (23,000 units $53) Unit level overhead costs (23,000 $12) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility level costs Total costs $1,104,000 1,219,000 276,000 90,000 87,300 290,000 490,000 $3,556,300

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Campbell Bike Company makes the frames used to build its bicycles. During year 2, Campbell made 23,000 frames; the costs incurred follow. Campbell has an

Campbell Bike Company makes the frames used to build its bicycles. During year 2, Campbell made 23,000 frames; the costs incurred follow.

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Campbell has an opportunity to purchase frames for $111 each. Additional Information

The manufacturing equipment, which originally cost $540,000, has a book value of $490,000, a remaining useful life of 5 years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $68,000 per year.
Campbell has the opportunity to purchase for $970,000 new manufacturing equipment that will have an expected useful life of 5 years and a salvage value of $55,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 70 percent. Assume that Campbell will continue to produce and sell 23,000 frames per year in the future.
If Campbell outsources the frames, the company can eliminate 90 percent of the inventory holding costs.

Required

Determine the avoidable cost per unit of making the bike frames, assuming that Campbell 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 Campbell outsource the bike frames?
Assuming that Campbell 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 Campbell is considering whether to either purchase the new equipment or outsource the bike frame, calculate the impact on profitability between the two alternatives.

Unit-level materials costs (23,000 units x $48) Unit-level labor costs (23,000 units * $53) Unit-level overhead costs (23,000 * $12) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costs Total costs $1,104,000 1,219,000 276,000 90,000 87,300 290,000 490,000 $3,556,300