Question 1
An advantage of using budgeted costs for transfer pricing among divisions is that ________.
◦ overall corporate profitability is usually higher
◦ it usually provides a basis for optimal decision making
◦ the divisions know the transfer price in advance
◦ it promotes subunit autonomy
Question 2
Crush Company makes internal transfers at 155% of full cost. The Soda Refining Division purchases 41,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $58 per container via an external shipper. To reduce costs, the company located an independent supplier in Illinois who is willing to sell 41,000 containers at $38 each, delivered to Crush Company's Shipping Division in Missouri. The company's Shipping Division in Missouri has excess capacity and can ship the 41,000 containers at a variable cost of $12.50 per container. What is the total cost of purchasing the water from the Illinois supplier and shipping it to the Soda Division?
◦ $1,558,000
◦ $2,070,500
◦ $2,378,000
◦ $512,500
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