The cycle division of TravelFast Company has the following cost data per unit for its most recent cycle, the Roadbuster:

The cycle division currently buys its body frames from an outside supplier. However, TravelFast has another division, FrameBody, that makes body frames for other cycle companies. The cycle division believes that FrameBody's product is suitable for its new Roadbuster cycle. FrameBody sells its frames to outside customers for $350 per frame. The variable cost for FrameBody is $250. The cycle division is willing to pay $275 to purchase the frames from FrameBody.
Instructions
(a) Assume that FrameBody has excess capacity and is able to meet all of the cycle division's needs. If the cycle division buys 1,000 frames from FrameBody, determine the following: (1) the effect on the cycle division's income; (2) the effect on FrameBody's income; and (3) the effect on TravelFast's income.
(b) Assume that FrameBody does not have excess capacity and therefore would lose sales if it sold the frames to the cycle division. If the cycle division buys 1,000 frames from FrameBody, determine the following: (1) the effect on the cycle division's income; (2) the effect on FrameBody's income; and (3) the effect on TravelFast's income.

Transcribed Image Text:

Selling price Variable cost of goods sold Body frame Other variable costs Contribution margin $2,200 $300 900 1,200 $1,000