Question 2 9 marks Race fast Pty. Ltd. manufactures and sells 16,000 racing bikes each year. The variable and fixed costs of rework and repair are as follows: Variable cost $79 Fixed cost 115 Rework cost per hour Repair costs: Customer support cost per hour Transportation cost per load Warranty repair cost per hour 70 175 178 55 115 150 Race fast Pty. Ltd.'s current presses have a quality problem that causes variations in the hardness of the bike frame. Its engineers suggest changing to a new supplier of higher quality raw steel, that will in turn reduce problems in the manufacturing process. The new raw steel will cost $78.75 more than the old raw steel. In the next year, however, Race fast Pty. Ltd. expects that with the new raw steel it will (1) save 1,400 hours of rework, (2) save 425 hours of customer support, (3) move 450 fewer loads, (4) save 400 hours of warranty repairs, and (5) sell an additional 140 racing bikes, based on a selling price of $8,000 and total variable cost of $6,800 per racing bike. Race fast Pty. Ltd. believes that even as it improves quality, it will not be able to save any of the fixed costs of re-work or repair. Race fast Pty. Ltd. uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year. Required: 1. Should Race fast Pty. Ltd. buy the new raw steel? Show your calculations. (5 marks) 2. Suppose the estimate of 140 additional racing bikes sold is low. What is the minimum number of additional racing bikes that Race fast Pty. Ltd. needs to sell to justify adopting the new raw steel? (2 marks) 3. Describe two other factors that managers at Race fast Pty. Ltd. Should consider when making their decision about changing to a new raw steel supplier? (2 marks)