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. To reduce costs, the company located an independent supplier in Missouri who is willing to sell 30,000 containers at $20 each, delivered to Crush Company's Shipping Division in Missouri. The company's Shipping Division in Missouri 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

Question

Quizplus · Accepted Answer

If the carbonated water is purchased from the local supplier, the cost would be:

Cost per container = $30
Total cost per day = 30,000 x $30 = $900,000

Since Crush Company makes internal transfers at 180% of full cost, the cost to transfer the carbonated water to the Missouri Shipping Division is:

Transfer cost = 180% x $30 = $54 per container
Total transfer cost per day = 30,000 x $54 = $1,620,000

Therefore, the total cost to Crush Company if the carbonated water is purchased from the local supplier is:
$900,000 + $1,620,000 = $2,520,000

This is more expensive than the cost of purchasing from the independent supplier, so the best choice would be to purchase from the independent supplier in Missouri.

Crush Company Makes Internal Transfers at 180% of Full Cost