Penrith Chocolate Company makes internal transfers at 180% of full cost.The Dairy Milk Division purchases 3000 litres of milk per day,on average,from a local supplier who delivers the milk for $3 per litre via an external shipper.To reduce costs,the company located an independent supplier in Tasmania who is willing to sell 3000 litres at $2 each,delivered to Penrith Chocolate Company's Shipping Division in Penrith.The company's Shipping Division has excess capacity and can ship the 3000 litres at a variable cost of $0.25 per litre.What is the total cost to Penrith Chocolate Company if the milk is purchased from the local supplier?
A)$9000
B)$6000
C)$12 000
D)$9750

Question

Quizplus · Accepted Answer

The cost of purchasing 3000 litres of milk per day from the local supplier is:

$3 x 3000 = $9,000

Since the internal transfer cost is 180% of full cost, the cost of the internal transfer would be:

180% x $9000 = $16,200

Therefore, the total cost to Penrith Chocolate Company if the milk is purchased from the local supplier is:

$9,000 + $16,200 = $25,200

Penrith Chocolate Company Makes Internal Transfers at 180% of Full