E9-28 Please show work Selling price Variable cost of goods sold Body frame Othe
ID: 2516721 • Letter: E
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E9-28
Please show work
Selling price Variable cost of goods sold Body frame Other variable costs Contribution margin $2,200 ent $300 900 1,200 The cycle division currently buys its body frames from an outside supplier. However, TravelFast has FrameBody, that makes body frames for other cycle companies. The cycle division believes that FrameBod suitable for its new Roadbuster cycle. FrameBody sells its frames to outside customers for $350 per frame. Th 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 th buys 1,000 frames from FrameBody, determine the following: (1) the effect on the cycle division's income; G2 on FrameBody's income; and (3) the effect on TravelFast's income (2) the (b) Assume that FrameBody does not have excess capacity and therefore would lose sales if it sold the frames t division. If the cycle division buys 1,000 frames from FrameBody, determine the following: (1) the effect o division's income; (2) the effect on FrameBody's income; and (3) the effect on TravelFast's income. E9-28 The machining division has a capacity of 4,000 units, Its sales and cost data are Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Total fixed manufacturing overhead S 160 50 10 100,000 Instructions (a) The machining division currently sells 1,600 units to outside customers, and the assembly division wants to purch 800 units from machining. If the transaction takes place, the variable selling costs per unit on the units transferred to assembly will be SO/unit, not $10/unit. What should be the transfer price in order not to affect its current profit (b) If the assembly division is currently buying from an outside supplier at $150 per unit, what will be the effect on overal company profits if internal sales for 800 units take place at the optimum transfer price? 9-29 The national division of Nero International Company is buying 20,000 widgets from an outside supplier at $75 per nit. Nero International's overseas division, which is producing and selling at full capacity (25,000 units), has the following les and cost structure:Explanation / Answer
As per the present situation, considering the selling price and costs to manufacture, the profit of the company stood at $ 60000 (* 256000 - **196000 = $ 60000)
* 256000 = 1600 * 160
** 196000 = 1600 * (50+10 ) + 100000
If company intends to sell it internally units of 800 and still intends to maintain the same profit, it would maintain trasfer price of $ 265 i.e.,
if by maintaining the same selling price ( 800* 160 = 128000 )and costs incurs at ( 800*50+100000) = 140000 the company getts the loss of ( 12000), inorder to cover the loss and get the same profit the company would have to maintain the trasfer price that would bring profit of $ 72000 ( 60000+12000) ie ( 140000+72000 = 212000) so ( $ 212000/ 800 units) = $ 265
2. If the transfer took at optimum price ie., no profit no loss situation the company may fix the traansfer price at $ 175 , ( only to maintain the costs ( 800*50+ 100000) = 140000/ 800 units = $ 175
so, if it maintains this position , the company overall profit would reduce by $ 25 per unit ie., ( $ 175-150)
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