Elite Inc. has many divisions that are evaluated on the basis of return on investment (ROI). One division, Beta, makes boxes. A second division, Lambda, makes chocolates and needs 90,000 boxes per year. Beta incurs the following costs for one box: Line Item Description Cost

Direct materials $0.40

Direct labor 0.70

Variable overhead 0.50

Fixed overhead 0.16

Total $1.76

Beta has the capacity to make 720,000 boxes per year. Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta sells its product for). Assume that Elite Inc. allows division managers to negotiate the transfer price. Beta is currently producing only 650,000 boxes. If Beta and Lambda agree to transfer boxes, what is the ceiling of the bargaining range and which division sets it?

a. $1.48; Beta

b. $1.35; Lambda

c. $2.00; Lambda

d. $1.35; Beta