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

Unit-level materials costs (23,000 units $50)	$	1,150,000
Unit-level labor costs (23,000 units $54)		1,242,000
Unit-level overhead costs (23,000 $15)		345,000
Depreciation on manufacturing equipment		98,000
Bike frame production supervisors salary		79,500
Inventory holding costs		360,000
Allocated portion of facility-level costs		570,000
Total costs	$	3,844,500

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

1. The manufacturing equipment, which originally cost $520,000, has a book value of $450,000, 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 $71,000 per year.

2. Franklin has the opportunity to purchase for $940,000 new manufacturing equipment that will have an expected useful life of 4 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.

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

Required

1. 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?

2. 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.

3. Assuming that Franklin is considering whether to either purchase or outsource, calculate the impact on profitability between the two alternatives.

• Required A
• Required B
• Required C

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? (Round your answer to 2 decimal places.)

Avoidable cost per unit for making the product		per unit
Should Franklin outsource the bike frames?		Yes

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. (Round "Avoidable cost per unit" to 2 decimal places.)

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	Old Equipment	New Equipment
Avoidable cost per unit	$57.09	$25.59
Profit must	increase	by	$724,500

Assuming that Franklin is considering whether to either purchase or outsource, calculate the impact on profitability between the two alternatives. (Do not round intermediate calculations.)

Should Franklin purchase new equipment or outsource?			Purchase
Profit must	increase	by