Penrith Chocolate Company makes internal transfers at 160% of full cost.The Dairy Milk Division purchases 4000 litres of milk per day,on average,from a local supplier who delivers the milk for $2.00 per litre via an external shipper.To reduce costs,the company located an independent supplier in Victoria who is willing to sell 4000 litres at $1.50 per litre,delivered to Penrith Chocolate Company's Shipping Division in Penrith.The company's Shipping Division in Penrith has excess capacity and can ship the 4000 litres at a variable cost of $0.45 per litre.What is the total cost of purchasing the milk from the Victorian supplier and shipping it to the Dairy Milk Division?
A)$12 480
B)$7800
C)$6000
D)$8000

Question

Quizplus · Accepted Answer

To find the total cost of purchasing and shipping the milk, we need to calculate the cost of the purchased milk from Victoria supplier and the cost of shipping it from Penrith Shipping division to the Dairy Milk division.

Cost of purchased milk from Victoria supplier = 4000 liters x $1.50 per liter = $6000

Variable cost of shipping 4000 liters from Penrith Shipping division to Dairy Milk division = 4000 liters x $0.45 per liter = $1800

Total cost = Cost of purchased milk + Variable shipping cost
Total cost = $6000 + $1800 = $7800

Therefore, the best choice is B) $7800 because it gives the lowest total cost for purchasing and shipping the milk.

Penrith Chocolate Company Makes Internal Transfers at 160% of Full