Crush Company makes internal transfers at 180% of full cost. The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper. In order to reduce costs the company located an independent producer in Manitoba who is willing to sell 30,000 containers at $20 each, delivered to Crush Company's shipping division in Manitoba. The company's Shipping Division in Manitoba has excess capacity and can ship the 30,000 containers at a variable cost of $2.50 per container. What is the total cost to Crush Company if the carbonated water is purchased from the local supplier?
A) $900,000
B) $1,200,000
C) $1,501,000
D) $1,620,000
E) $1,721,150

Question

Quizplus · Accepted Answer

If Crush Company purchases from the local supplier, the total cost will be:

$30 per container x 30,000 containers per day = $900,000 per day

Since there is no information about the full cost of the carbonated water, we cannot calculate the internal transfer cost. Therefore, we cannot determine if the independent producer in Manitoba is a better choice.

Crush Company Makes Internal Transfers at 180% of Full Cost