Giga-Stuff, Inc Sophistosand Has the Capacity to Make 400,000 Units of Component

question 135

Multiple Choice

Giga-Stuff, Inc.Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: $$\begin{array} { l l } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & \underline { 1.00 } \\\text { Total } & \underline { \$ 2.15 }\end{array}$$ Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives) .
-Refer to Giga-Stuff, Inc. Assume the company allows negotiated transfer pricing. What is the floor of the bargaining range, and which division sets it?

• A) $1.15; Videostuff
• B) $2.15; Videostuff
• C) $1.15; Sophistosand
• D) $2.15; Sophistosand

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Definitions:

Scheduled Component

Refers to parts or aspects of a project, maintenance, or production that are planned and executed at a specific time.

Professional Counselors

Licensed professionals who offer guidance and support to individuals, couples, and families dealing with emotional, mental, and behavioral issues.

Crisis Intervention

A type of emergency psychological care aimed at assisting individuals in a crisis situation to restore equilibrium to their biopsychosocial functioning and minimize potential psychological trauma.

Prevention

Measures or actions taken to reduce the likelihood of an event or condition from occurring.