Determine minimum transfer price under different situations.E9.27 (LO 6) The cycle division of TravelFast Company has the following cost data per unit for its mostrecent cycle, the Roadbuster:Selling priceVariable cost of goods soldBody frameOther variable costsContribution margin$300$2,200900 1,200$1,000The cycle division currently buys its body frames from an outside supplier. However, TravelFast has anotherdivision, FrameBody, that makes body frames for other cycle companies. The cycle division believes thatFrameBody's product is suitable for its new Roadbuster cycle. FrameBody sells its frames to outsidecustomers for $350 per unit. The variable cost for FrameBody is $250. The cycle division is willing to pay$275 to purchase the frames from FrameBody.Instructionsa. Assume that FrameBody has excess capacity and is able to meet all of the cycle division's needs. If thecycle division buys 1,000 frames from FrameBody, determine the following: (1) the effect on the cycledivision'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 theframes to the cycle division. If the cycle division buys 1,000 frames from FrameBody, determine thefollowing: (1) the effect on the cycle division's income; (2) the effect on FrameBody's income; and (3)the effect on TravelFast's income.

Transfer pricing is the practice under which a price is determined and the goods and services are…

Answered: Instructions a. Assume that FrameBody…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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ABC Corporation manufactures a product that gives rise to a by-product called Z. The only costs associated with Z are selling costs of P1 for each unit sold. ABC accounts for Z sales first b deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Z were sold at P4 each. If ABC changes its method of accounting for Z sales by showing the net amount as additional sales revenue, ABC's gross margin would*a. decrease by P3,000b. increase by P4,000c. increase by P3,000d. be unaffected
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Solve 2, the first answer is the wrong. Find the lowest acceptable transfer price.
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