Question
The cycle division of TravelFast Company has the following cost data per unit for its most recent cycle, the Roadbuster: Selling price Variable cost of
The cycle division of TravelFast Company has the following cost data per unit for its most recent cycle, the Roadbuster:
Selling price
Variable cost of goods sold Body frame
Other variable costs Contribution margin
$300 900
$2,200 1,200 $1,000
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 eff ect on the cycle division's income; (2) the eff ect on FrameBody's income; and (3) the eff ect on Travel-Fast'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 eff ect on the cycle division's income; (2) the eff ect on FrameBody's income; and (3) the eff ect on TravelFast's income.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started