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 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X:
| Direct materials | $0.30 |
| Direct labor | 0.15 |
| Variable overhead | 0.70 |
| Fixed overhead | 1.00 |
| Total | $2.15 |
Sophistosand has capacity to make 400,000 units of component X per year, but due to a soft market, only plans to produce and sell 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 Figure 12 4. Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20. What is the total benefit for Sophistosand?
| $18,000 | |||||||||||||||||||||||||||||
| $132,000 | |||||||||||||||||||||||||||||
| $63,000 | |||||||||||||||||||||||||||||
| $69,000 | |||||||||||||||||||||||||||||
| $81,000 2)
Sophistosand has capacity to make 400,000 units of component X per year, but due to a soft market, only plans to produce and sell 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 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?
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