Solomon Bike Company makes the frames used to build its bicycles. During Year 2, Solomon made 20,000 frames; the costs incurredfollow.Unit-level materials costs (20,000 units x $55)Unit-level labor costs (20,000 units x $56)Unit-level overhead costs (20,000 x $9)Depreciation on manufacturing equipmentBike frame production supervisor's salaryInventory holding costsAllocated portion of facility-level costsTotal costsSolomon has an opportunity to purchase frames for $112 each.Additional Information$ 1,100,0001,120,000180,00096,00079,000240,000520,000$ 3,335,0001. The manufacturing equipment, which originally cost $520,000, has a book value of $470,000, a remaining useful life of fourand a zero salvage value. If the equipment is not used to produce bicycle frames, it can be leased for $71,000 per year.years,2. Solomon has the opportunity to purchase for $910,000 new manufacturing equipment that will have an expected useful life of fouryears and a salvage value of $88,000. This equipment will increase productivity substantially, reducing unit-level labor costs by 70percent. Assume that Solomon will continue to produce and sell 20,000 frames per year in the future.3. If Solomon outsources the frames, the company can eliminate 70 percent of the inventory holding costs.Requireda. Determine the avoidable cost per unit of making the bike frames, assuming that Solomon is considering the alternatives of makingthe product using the existing equipment or outsourcing the product to the independent contractor. Based on the quantitative data,should Solomon outsource the bike frames?b. Assuming that Solomon is considering whether to replace the old equipment with the new equipment, determine the avoidable costper unit to produce the bike frames using the new equipment and the avoidable cost per unit to produce the bike frames using theold equipment. Calculate the increase or decrease in the company's profit if the company uses new equipment.c. Assuming that Solomon is considering whether to purchase the new equipment or outsource the bike frame, calculate the impacton profitability between the two alternatives.Complete this question by entering your answers in the tabs below.

Avoidable Cost:An avoidable cost is the expense won't be caused in the event that a specific…

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

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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