Stuart Bike Company makes the frames used to build its bicycles During 2018, Stuart made 25,000 frames the costs incurred follow Unit level materials costs (25,000 units $42) $ 1,050,000 Unit level labor costs (25,000 units $44) 1,100,000 Unit level overhead costs (25,000 $14) 350,000 Depreciation on manufacturing equipment 95,000 Bike frame production supervisors salary 59,000 Inventory holding costs 370,000 Allocated portion of facility level costs 540,000 Total costs $ 3,564,000 Stuart has an opportunity to purchase frames for $110 each Additional Information The manufacturing equipment, which originally cost $540,000, has a book value of $410,000, a remaining useful life of four years, and a zero salvage value If the equipment is not used to produce bicycle frames, it can be leased for $72,000 per year Stuart has the opportunity to purchase for $1,100,000 new manufacturing equipment that will have an expected useful life of four years and a salvage value of $72,000 This equipment will increase productivity substantially, reducing unit level labor costs by 50 percent Assume that Stuart will continue to produce and sell 25,000 frames per year in the future If Stuart outsources the frames, the company can eliminate 70 percent of the inventory holding costs Required Determine the avoidable cost per unit of making the bike frames, assuming that Stuart 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 Stuart outsource the bike frames Assuming that Stuart 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 Assuming that Stuart is considering whether to either purchase the new equipment or outsource the bike frame, calculate Avoidable cost per unit for making the product per unit Stuart should outsource the bike frames Old Equipment New Equipment Avoidable cost per unit Profit must by Should Stuart purchase new equipment or outsource Profit must by please explain thank you

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Posted on Aug 02, 2024

Stuart Bike Company makes the frames used to build its bicycles. During 2018, Stuart made 25,000 frames; the costs incurred follow:


Unit-level materials costs (25,000 units $42)	$	1,050,000
Unit-level labor costs (25,000 units $44)		1,100,000
Unit-level overhead costs (25,000 $14)		350,000
Depreciation on manufacturing equipment		95,000
Bike frame production supervisors salary		59,000
Inventory holding costs		370,000
Allocated portion of facility-level costs		540,000
Total costs	$	3,564,000

Stuart has an opportunity to purchase frames for $110 each.

Additional Information

The manufacturing equipment, which originally cost $540,000, has a book value of $410,000, a remaining useful life of four years, and a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $72,000 per year.
Stuart has the opportunity to purchase for $1,100,000 new manufacturing equipment that will have an expected useful life of four years and a salvage value of $72,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 50 percent. Assume that Stuart will continue to produce and sell 25,000 frames per year in the future.
If Stuart outsources the frames, the company can eliminate 70 percent of the inventory holding costs.

Required

Determine the avoidable cost per unit of making the bike frames, assuming that Stuart 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 Stuart outsource the bike frames?
Assuming that Stuart 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.
Assuming that Stuart is considering whether to either purchase the new equipment or outsource the bike frame, calculate.