The Cycle Division of Ayala Company has the following per unit data related to its most recent cycle called Road buster.
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Selling price
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$2,229
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Variable cost of goods sold
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Body frame
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$311
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Other variable costs
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908
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1,219
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Contribution margin
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$1,010
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Presently, the Cycle Division buys its body frames from an outside supplier. However Ayala has another division, Frame Body, that makes body frames for other cycle companies. The Cycle Division believes that Frame Body's product is suitable for its new Road buster cycle. Presently, Frame Body sells its frames for $352 per frame. The variable cost for Frame Body is $268. The Cycle Division is willing to pay $288 to purchase the frames from Frame Body.
Assume that Frame Body has excess capacity and is able to meet all of the Cycle Division's needs. If the Cycle Division buys 1,003 frames from Frame Body, determine the following:
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1.
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Effect on the income of the Cycle Division
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$
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2.
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Effect on the income of Frame Body
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$
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3.
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Effect on the income of Ayala
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$
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Assume that Frame Body does not have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,003 frames from Frame Body, determine the following:
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1.
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Effect on income of the Cycle Division
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$
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2.
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Effect on income of Frame Body
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$
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3.
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Effect on income of Ayala
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$
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