Penrith Chocolate Company Makes Internal Transfers at 180% of Full

question 20

Multiple Choice

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

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Definitions:

Deadweight Loss

A loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved.

Under Production

A situation where less is produced than could be achieved with the available resources, often leading to inefficiencies and unmet demand.

Consumer Surplus

The gap between the price consumers are prepared to pay for a product or service and the actual amount they spend on it.

Market Price

The market rate for buying or selling an asset or service in a public trading environment.