The Cycle Division of Ayala Company has the following per unit data related to its most recent
Question:
Presently, the Cycle Division buys its body frames from an outside supplier. However Ayala has another division, FrameBody, that makes body frames for other cycle companies. The Cycle Division believes that FrameBodys product is suitable for its new Roadbuster cycle. Presently, FrameBody sells its frames for $350 per frame. The variable cost for FrameBody is $270. The Cycle Division is willing to pay $280 to purchase the frames from FrameBody.
Instructions
(a) Assume that FrameBody has excess capacity and is able to meet all of the Cycle Divisions needs. If the Cycle Division buys 1,000 frames from FrameBody, determine the following:
(1) Effect on the income of the Cycle Division;
(2) Effect on the income of FrameBody; and
(3) Effect on the income of Ayala.
(b) Assume that FrameBody does not have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,000 frames from FrameBody, determine the following:
(1) Effect on the income of the Cycle Division;
(2) Effect on the income of FrameBody; and
(3) Effect on the income ofAyala.
Step by Step Answer:
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso