Retu Problem 6-27A Outsourcing decision affected by equipment replacement LO 6-3, 6-5 Fanning Bike Company makes the frames used to build its bicycles. During 2018, Fanning made 21,000 frames, the costs incurred follow: Unit-level materials costs (21,000 units x $48) Unit-level labor costs (21,000 units X $50) Unit-level overhead costs (21,000 x $13) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costs Total costs $1,008,000 1,050,000 273,000 94,000 82,300 250,000 500,000 $3,257,380 Fanning has an opportunity to purchase frames for $115 each. Additional Information 1. The manufacturing equipment, which originally cost $500,000, has a book value of $420,000, a remaining useful life of 8 years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $60,000 per year. 2. Fanning has the opportunity to purchase for $920,000 new manufacturing equipment that will have an expected useful life of 6 years and a salvage value of $93,800. This equipment will increase productivity substantially, reducing unit-level labor costs by 60 percent. Assume that Fanning will continue to produce and sell 21,000 frames per year in the future. Retur percent. Assume that Fanning will continue to produce and sell 21,000 trames per year in the future. 3. If Fanning 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 Fanning 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 Fanning outsource the bike frames? b. Assuming that Fanning 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. c. Assuming that Fanning is considering whether to either purchase the new equipment or outsource the bike frame, calculate. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that Fanning is considering whether to either purchase the new equipment or outsource the bike frame, calculate. (Do not round intermediate calculations.) C. Assuming that Fanning is considering whether to either purchase the new equipment or outsource the bike frame, calculate Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that Fanning is considering whether to either purchase the new equipment or outsource the bike frame, calculate. (Do not round intermediate calculations.) Should sturdy purchase new equipment or outsource? Profit must increase by Purchase $ 557,700