MORTON COMPANY TRANSFER PRICING

The Cycle Division of Morton Company has the following per unit data related to its most recent cycle called Roadbuster.

Cycle Division -Morton Bodyframe Division
Selling price $2.000 Selling price $360
Variable cost of goods sold $1.200 Variable cost $250
Body frame 300
Other variable costs 900 Contribution margin
Contribution margin $800

Presently, the Cycle Division buys its body frames from an outside supplier. However Morton has another division, BodyFrame, that makes body frames for other cycle companies.
The Cycle Division believes that BodyFrame’s product is suitable for its new Road- buster cycle. Presently, BodyFrame sells its frames for $360 per frame.
The variable cost for BodyFrame is $250. The Cycle Division is willing to pay $280 to purchase the frames from BodyFrame.

(A) Assume that BodyFrame does not have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,000 frames from BodyFrame, determine the following: (1) effect on the income of the Cycle Division; (2) effect on the income of BodyFrame; and (3) effect on the income of Morton.