The Fruit Drink Company Makes Internal Transfers at 180% of Full

question 130

Multiple Choice

The Fruit Drink 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 Tasmania who is willing to sell 30 000 containers at $20 each,delivered to The Fruit Drink Company's Shipping Division in Tasmania.The company's Shipping Division in Tasmania 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 The Fruit Drink Company if the carbonated water is purchased from the local supplier?

• A)$900 000
• B)$1 501 000
• C)$1 200 000
• D)$1 620 000

---

Definitions:

Maximizes Profits

The strategy employed by firms to achieve the highest possible profit from their operations, often through increasing revenue, reducing costs, or both.

Monopolistically Competitive

A market structure characterized by many firms selling products that are substitutes but differentiated from one another.

Economic Profit

A firm's total revenues minus its explicit and implicit costs; a measure of performance that includes opportunity costs.

Efficient Level

The optimal point of production or operation where a firm, market, or economy can achieve the best possible outcome with the least waste of resources.