Jordan Bike Company makes the frames used to build its bicyctes. During 2018, Jordan made 25,000 frames, the costs incurred follow Unit-level materials costs (25,e00 units x $51) $1,275,00e Unit-level labor costs (25,e00 units x $52)1,300,eee Unit-level overhead costs (25,e00 x $10) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costss10,000 Total costs 250,000 91,000 64,000 390,000 $3,880,0e0 Jordan has an opportunity to purchase frames for S116 each Additional Information 1. The maniufacturing equipment, which originally cost $590,000, has a book value of $470,000, a remaining useful life of five years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $79,000 per year 2. Jordan has the opportunity to purchase for $920,000 new manufacturing equipment that wil have an expected useful life of five years and a salvage value of $50,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 50 percent. Assume that Jordan will continue to produce and sell 25,000 frames per year in the future. 3. If Jordan outsources the frames, the company can eliminate 80 percent of the inventory holding costs Required a. Determine the avoidable cost per unit of making the bike frames, assuming that Jordan is considering the alternatives of making the b. Assuming that Jordan is considering whether to replace the old equipment with the new equipment, determine the avoidable co c. Assuming that Jordan is considering whether to either purchase the new equipment or outsource the bike frame. calculat. product using the existing equipment or outsourcing the product to the independent contractor. Based on the quantitative data should Jordan rce the bike frames? per unit to produce the bike frames using the new equipment and the avoidable cost per unit to produce the bike frames using old equipment. Calculate the increase or decrease in the company's profit if the company uses new equipment. Jordan Bike Company makes the frames used to build its bicyctes. During 2018, Jordan made 25,000 frames, the costs incurred follow Unit-level materials costs (25,e00 units x $51) $1,275,00e Unit-level labor costs (25,e00 units x $52)1,300,eee Unit-level overhead costs (25,e00 x $10) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costss10,000 Total costs 250,000 91,000 64,000 390,000 $3,880,0e0 Jordan has an opportunity to purchase frames for S116 each Additional Information 1. The maniufacturing equipment, which originally cost $590,000, has a book value of $470,000, a remaining useful life of five years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $79,000 per year 2. Jordan has the opportunity to purchase for $920,000 new manufacturing equipment that wil have an expected useful life of five years and a salvage value of $50,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 50 percent. Assume that Jordan will continue to produce and sell 25,000 frames per year in the future. 3. If Jordan outsources the frames, the company can eliminate 80 percent of the inventory holding costs Required a. Determine the avoidable cost per unit of making the bike frames, assuming that Jordan is considering the alternatives of making the b. Assuming that Jordan is considering whether to replace the old equipment with the new equipment, determine the avoidable co c. Assuming that Jordan is considering whether to either purchase the new equipment or outsource the bike frame. calculat. product using the existing equipment or outsourcing the product to the independent contractor. Based on the quantitative data should Jordan rce the bike frames? per unit to produce the bike frames using the new equipment and the avoidable cost per unit to produce the bike frames using old equipment. Calculate the increase or decrease in the company's profit if the company uses new equipment
