Diaz 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.To reduce costs, the company located an indepen?dent producer in Iowa who is willing to sell 30,000 containers at $20 each, delivered to Diaz Company's shipping division in Iowa.The company's Shipping Division in Iowa has excess capacity and can ship the 30,000 containers at a variable cost of $3.50 per container._____ is the total cost of purchasing the water from the Iowa supplier and shipping it to the Soda Division.
A)$600,000
B)$705,000
C)$1,080,000
D)$1,215,000

Question

Quizplus · Accepted Answer

Cost to purchase 30,000 containers from Iowa supplier = 30,000 x $20 = $600,000
Variable cost to ship 30,000 containers from Iowa to Soda Division = 30,000 x $3.50 = $105,000
Total cost = $600,000 + $105,000 = $705,000
Since Diaz Company makes internal transfers at 180% of full cost, the total cost should be multiplied by 1.8
180% of $705,000 = $1,269,000
Therefore, the best choice is B as it is the closest to $1,269,000.

Diaz Company Makes Internal Transfers at 180% of Full Cost