The Cycle Division of Ayala Company has the following per unit data related to i

Question

The Cycle Division of Ayala Company has the following per unit data related to its most recent cycle called Roadbuster. Selling price $2,200 Variable cost of goods sold      Body frame $306      Other variable costs 895 1,201 Contribution margin $999 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 FrameBody's product is suitable for its new Roadbuster cycle. Presently, FrameBody sells its frames for $357 per frame. The variable cost for FrameBody is $258. The Cycle Division is willing to pay $287 to purchase the frames from FrameBody. Assume that FrameBody has excess capacity and is able to meet all of the Cycle Division's needs. If the Cycle Division buys 1,130 frames from FrameBody, determine the following: (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Effect on the income of the Cycle Division $ Effect on the income of FrameBody $ Effect on the income of Ayala $ 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 1,130 frames from FrameBody, determine the following: (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Effect on the income of the Cycle Division $ Effect on the income of FrameBody $ Effect on the income of Ayala $ The Cycle Division of Ayala Company has the following per unit data related to its most recent cycle called Roadbuster. Selling price $2,200 Variable cost of goods sold      Body frame $306      Other variable costs 895 1,201 Contribution margin $999 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 FrameBody's product is suitable for its new Roadbuster cycle. Presently, FrameBody sells its frames for $357 per frame. The variable cost for FrameBody is $258. The Cycle Division is willing to pay $287 to purchase the frames from FrameBody. Assume that FrameBody has excess capacity and is able to meet all of the Cycle Division's needs. If the Cycle Division buys 1,130 frames from FrameBody, determine the following: (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Effect on the income of the Cycle Division $ Effect on the income of FrameBody $ Effect on the income of Ayala $ 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 1,130 frames from FrameBody, determine the following: (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Effect on the income of the Cycle Division $ Effect on the income of FrameBody $ Effect on the income of Ayala $

Explanation / Answer

FrameBody has excess capacity:

Effect on the income of Cycle Division: Income would increase by $ ( 306 - 287) x 1,130 = $ 21,470

Effect on income of FrameBody : Income would increase by $ ( 287 - 258) x 1,130 = $ 32,770

Effect on income of Ayala : Income would increase by $ ( 21,470 + 32,770) = $ 54,240

FrameBody does not have excess capacity:

Effect on in come of Cycle Division: Increase by $ 21,470

Effect on the income of FrameBody : Decrease by $ ( 357 - 258) x 1,130 - ( 287-258) x 1,130 = $ (79,100)

Effect on the income of Ayala : Decrease by $ 21,470 - $ 79,100 = $ (57,630)

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