Stuart Bike Company makes the frames used to build its bicycles. During year 2, Stuart made 25,000 frames; the costs incurred follow. Unit-level materials costs (25,000 units X $42) Unit-level labor costs (25,000 units * $44) Unit-level overhead costs (25,000 x $14) Depreciation on manufacturing equipment Bike frame production supervisor's salary Inventory holding costs Allocated portion of facility-level costs Total costs $1,050,000 1,100,000 350,000 95,000 59,000 370,000 540,000 $3,564,000 Stuart has an opportunity to purchase frames for $110 each. Additional Information 1. The manufacturing equipment, which originally cost $540,000, has a book value of $410,000, a remaining useful life of 4 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. 2. Stuart has the opportunity to purchase for $1,100,000 new manufacturing equipment that will have an expected useful life of 4 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. 3. If Stuart outsources the frames, the company can eliminate 70 percent of the inventory holding costs. Required a. 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? b. 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. c. Assuming that Stuart is considering whether to either purchase or outsource, calculate the impact on profitability between the two alternatives