1)

Giga-Stuff Inc. has a number of divisions. One division Sophistosand makes a component component X that is used in the manufacture of DVD players. Another
division Videostuff makes DVD players that use component X and needs 60000 units of component X per year. Sophistosand incurs the following costs for one
unit of component X:
$0.30 0.15 0.70 1.00 $2.15
Sophistosand has capacity to make 400000 units of component X per year but due to a soft market only plans to produce and sell 320000 units next year.
Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). Refer to Figure 12-4. Assume that
Sophistosand and Videostuff have agreed on a transfer price of $2.20. What is the total benefit for Sophistosand?
$18000 $132000 $63000 $69000 $81000
2)
Giga-Stuff Inc. has a number of divisions. One division Sophistosand makes a component component X that is used in the manufacture of DVD
players. Another division Videostuff makes DVD players that use component X and needs 60000 units of component X per year. Sophistosand
incurs the following costs for one unit of component X: $0.30 0.15 0.70 1.00 $2.15Sophistosand has capacity to make 400000 units of component X per year but due to a soft market only plans to produce and sell
320000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand
receives). Refer to Figure 12-4. Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20. What are the total cost
savings for Videostuff? $18000 $132000 $63000 $69000 $81000