Problem 13-29 Outsourcing decision affected by equipment replacement LO 13-3, 13-5 Solomon Bike Company makes the frames used to build its bicycles During 2018, Solomon made 20,000 frames; the costs incurred follow Unit-level naterials costs (20,000 units s55) Unit-level labor costs (20,e00 units x $56) Unit-level overhead costs (20,000-59) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costs Total costs 51,108,0ee 1,120,00 180,000 96,000 79,00 240,000 Referencer 528, 3, 335,000 Solomon has an opportunity to purchase frames for $112 each 1. The manufacturing equipment, which originally cost $520,000, has a book value of $470,000, a remaining useful life of six years 2 Solomon has the opportunity to purchase for $910,000 new manufacturing equipment that will have an expected useful life of si 3. If Solomon outsources the frames, the company can eliminate 70 percent of the inventory holding costs and a zero salvage value If the equipment is not used to produce bicycle frames, it can be leased for $71,000 per year years and a salvage value of $88,000. This equipment will increase productivity substantially, reducing unit level labor costs by 70 percent Assume that Solomon will continue to produce and sell 20,000 frames per year in the future Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the avoidable cost per unit of making the bike frames, assuming that Solomon 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 Solomon outsource the bike frames? (Round your answer to 2 decimal places.) vces Avoidable cost per unit for making the product Solomon should outsource the bike frames? per unit Required B Conmpletcths getion in he oabs below Required A Required BRequied her to replace the old equipme Assuming that Solomon 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.) Show less Old Equipment New Equipment Avoidable cost per unit Profit must by Required A Required C> Complete this question by entering your answers in the tabs below Required ARequired B Required C Assuming that Solomon is considering whether to either purchase the new equipment or outsource the bike frame, calculate. (Do not round intermediate calculations.) ook Print erences Should Solomon purchase new equipment or outsource? Profit must by Required B
