Vernon Bike Company makes the frames used to build its bicycles. During 2018, Vernon made 22,000 frames; the costs incurred follow:

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

Additional Information

1. The manufacturing equipment, which originally cost $500,000, has a book value of $450,000, 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 $78,000 per year.

2. Vernon has the opportunity to purchase for $960,000 new manufacturing equipment that will have an expected useful life of five years and a salvage value of $64,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 70 percent. Assume that Vernon will continue to produce and sell 22,000 frames per year in the future.

3. If Vernon outsources the frames, the company can eliminate 80 percent of the inventory holding cost

   Required

4. Determine the avoidable cost per unit of making the bike frames, assuming that Vernon 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 Vernon outsource the bike frames?

5. Assuming that Vernon 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.

7. Assuming that Vernon is considering whether to either purchase the new equipment or outsource the bike frame, calculate.

$1,056,000 Unit-level materials costs (22,000 units x Unit-level labor costs (22,000 units x Unit-level overhead costs (22,000 $48) $53) x $12) 1,166,000 264,000 Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costs 99,000 75,800 289,000 580,000 Total costs $3,529,800 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 Vernon 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 Vernon outsource the bike frames? (Round your answer to 2 decimal places.) Avoidable cost per unit for making the product Vernon should outsource the bike frames? per unit Required A Required B Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that Vernon 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 A Old Equipment New Equipment Avoidable cost per unit by Profit must Required A Required C Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that Vernon is considering whether to either purchase the new equipment or outsource the bike frame, calculate. (Do not round intermediate calculations.) Should Vernon purchase new equipment or outsource? by Profit must