Franklin Bike Company makes the frames used to build its bicycles During 2018, Franklin made 23,000 frames the costs incurred follow Unit level materials costs (23,000 units $50)$1,150,000Unit level labor costs (23,000 units $54)1,242,000Unit level overhead costs (23,000 $15)345,000Depreciation on manufacturing equipment98,000Bike frame production supervisor's salary79,500Inventory holding costs360,000Allocated portion of facility level costs570,000Total costs$3,844,500 Franklin has an opportunity to purchase frames for $114 each Additional Information The manufacturing equipment, which originally cost $520,000, has a book value of $450,000, a remaining useful life of four years, and a zero salvage value If the equipment is not used to produce bicycle frames, it can be leased for $71,000 per year Franklin has the opportunity to purchase for $940,000 new manufacturing equipment that will have an expected useful life of four years and a salvage value of $76,400 This equipment will increase productivity substantially, reducing unit level labor costs by 70 percent Assume that Franklin will continue to produce and sell 23,000 frames per year in the future If Franklin 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 Franklin 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 Franklin outsource the bike frames Assuming that Franklin 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 Franklin is considering whether to either purchase the new equipment or outsource the bike frame, calculate

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

Franklin Bike Company makes the frames used to build its bicycles. During 2018, Franklin made 23,000 frames; the costs incurred follow: Unit-level materials costs (23,000

Franklin Bike Company makes the frames used to build its bicycles. During 2018, Franklin made 23,000 frames; the costs incurred follow:

Unit-level materials costs (23,000 units $50)$1,150,000Unit-level labor costs (23,000 units $54)1,242,000Unit-level overhead costs (23,000 $15)345,000Depreciation on manufacturing equipment98,000Bike frame production supervisor's salary79,500Inventory holding costs360,000Allocated portion of facility-level costs570,000Total costs$3,844,500

Franklin has an opportunity to purchase frames for $114 each.

Additional Information

The manufacturing equipment, which originally cost $520,000, has a book value of $450,000, a remaining useful life of four years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $71,000 per year.
Franklin has the opportunity to purchase for $940,000 new manufacturing equipment that will have an expected useful life of four years and a salvage value of $76,400. This equipment will increase productivity substantially, reducing unit-level labor costs by 70 percent. Assume that Franklin will continue to produce and sell 23,000 frames per year in the future.
If Franklin 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 Franklin 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 Franklin outsource the bike frames?
Assuming that Franklin 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 Franklin is considering whether to either purchase the new equipment or outsource the bike frame, calculate.