Cola Cola 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. In order to reduce costs the company located an independent producer in Alberta who is willing to sell 30,000 containers at $20 each, delivered to Cola Cola Company's shipping division in Alberta. The company's Shipping Division in Alberta can ship the 30,000 containers at a variable cost of $2.50 per container and a full cost, based on practical capacity, of $4.00 per container. When the company's Alberta shipping division ships for external customers is charges $6.00 per container.

6) What is the total cost to Cola Cola Company if the carbonated water is purchased from the local supplier? (2 marks - show your work for marks)

A) $900,000

B) $1,200,000

C) $975,000

D) $1,080,000

E) $1,620,000

Answer:

7) What is the total incremental cost of purchasing the water from the independent producer and shipping it to the Soda Division if the company's Alberta shipping division has idle capacity? (2 marks - show your work for marks)

A) $600,000

B) $675,000

C) $720,000

D) $816,000

E) $780,000

Answer:

8) What is the opportunity cost for Cola Cola Company from continuing to purchase the water from the local supplier if the company's Alberta shipping division has sufficient idle capacity? (2 marks - show your work for marks)

A) $600,000

B) $60,000

C) $105,000

D) $180,000

E) $0

Answer:

9) What is the daily operating advantage (disadvantage) of purchasing the water from the independent producer and using the company's Alberta shipping department, assuming the shipping department is currently shipping 50,000 containers per day for external customers? (2 marks - show your work for marks)

A) $0

B) $45,000

C) $225,000

D) $120,000

E) $165,000