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 of purchasing the water from the Manitoba supplier and shipping it to the Soda Division?
A) $600,000
B) $675,000
C) $1,080,000
D) $1,215,000
E) $1,815,000

Question

Quizplus · Accepted Answer

The cost of purchasing 30,000 containers at $20 each is:

30,000 x $20 = $600,000

The variable cost of shipping 30,000 containers at $2.50 each is:

30,000 x $2.50 = $75,000

The full cost of purchasing and shipping the water is:

$600,000 + $75,000 = $675,000

However, Crush Company makes internal transfers at 180% of full cost, so the total cost is:

$675,000 x 1.8 = $1,215,000

Therefore, the best choice is B.

Crush Company Makes Internal Transfers at 180% of Full Cost