Giga-Stuff, Inc -Refer to the Figure

question 19

Multiple Choice

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:
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) .
$$\begin{array} { l r } \text { Direct materials } & \$ 0.30 \\\text { Direct labour } & 0.15 \\\text { Variable overhead } & 0.70 \\\text { Fixed overhead } & 1.00 \\\text { Total } & \$ 2.15\end{array}$$
-Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the ceiling of the bargaining range,and which division sets it?

• A)$2.15; Sophistosand
• B)$2.15; Videostuff
• C)$2.50; Sophistosand
• D)$2.50; Videostuff

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Definitions:

Gastrosplenic Vein

A blood vessel that carries blood from the stomach and spleen towards the heart.

Inferior Phrenic Vein

Veins that drain blood from the diaphragm into the inferior vena cava or the left suprarenal vein.

Axillary Vein

A vein that accompanies the axillary artery and drains the upper limb and the lateral aspect of the thorax and breast.

Subscapular Vein

A vein that drains blood from the subscapular region, which includes the underside of the scapula, and typically joins with the axillary vein.