Question

Question 3 The Cycle Division of Ayala Company has the following per unit data related to its most recent cycle called Roadbuster Selling price $2,120 Variable cost of goods sold Body frame $309 1,205 Other variable costs 896 Contribution margin $915 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 $345 per frame. The variable cost for FrameBody is $255. The Cycle Division is willing to pay $280 to purchase the frames from FrameBody (a) Assume that FrameBody has excess capacity and is able to meet all of the Cycle Division's needs. If the Cycle Division buys 1,070 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).) (1) Effect on the income of the Cycle Division (2) Effect on the income of FrameBody (3) Effect on the income of Ayala By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor. Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

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 1,070 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).)

Answer 1

a (1) B2 A В C D E G Н I 1 а (1) $ 299,600 purchases from framebody 2 $ 330,630 purchases from outside supplier 3 since the purchase amount is less in case of framebody, net income of cycle division shall increase 4 $31,030 effect on income of the cycle division 6 7 а (2) $299,600 $ 272,850 $ 26,750 additional sales additional variable cost additional sales 10 11 $26,750 effect on income of framebody 12 13 $57,780 effect on income of Ayala а (3) 14 15 16 b (1) $ 299,600 purchases from framebody 17 330,630 purchases from outside supplier 18 since the purchase amount is less in case of framebody, net income of cycle division shall increase 19 20 $ 31,030 effect on income of the cycle division 21 22 $ 299,600 b (2) additional sales 23 additional variable cost $ 272,850 24 additional contribution margin $ 26,750 25 $ 96,300 loss of contribution margin on regular sales 26 27 -$ 69,550 effect on income of framebody 28 29 -$ 38,520 effect on income of Ayala b (3) 30 31

for formulas and calculations, refer to the image below -

a (1) B2 А В C E F G Н I 1 а (1) 1070 280 1070 309 purchases from framebody 2 purchases from outside supplier since the purchase amount is less in case of framebody, net income of cycle division shall increase 4 5 effect on income of the cycle division =D3-D2 6 7 additional sales 1070 280 a (2) additional variable cost -1070 255 additional sales -D8-D9 10 11 effect on income of framebody ED10 12 13 effect on income of Ayala a (3) ED6+D12 14 15 16 b (1) purchases from framebody - 1070 280 17 purchases from outside supplier - 1070 309 18 since the purchase amount is less in case of framebody, net income of cycle division shall increase 19 20 D18- D17 effect on income of the cycle division 21 22 - 1070 280 - 1070 255 b (2) additional sales 23 additional variable cost 24 -D23-D24 loss of contribution margin on regular sales (345-255) 1070 additional contribution margin 25 26 27 -D25-D26 effect on income of framebody 28 29 effect on income of Ayala ED21+D28 b (3) 30 31 m n

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