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) 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 are the total cost savings for Videostuff?

		$18,000
		$132,000
		$63,000
		$69,000
		$81,000