Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below: Extraction : Variable costs per barrel of oil $ 12 Fixed costs per barrel of oil $ 4 Refining : Variable costs per barrel of oil $ 27 Fixed costs per barrel of oil $ 30 The Refining Division has been operating at a capacity of 40 comma 200 barrels a day and usually purchases 26 comma 000 barrels of oil from the Extraction Division and 15 comma 900 barrels from other suppliers at $ 57 per barrel. What is the transfer price per barrel from the Extraction Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 120 % of full costs? A. $ 82.80 B. $ 19.20 C. $ 46.00 D. $ 16.00

Question

Derek Brennan

Business

3 March, 15:48

Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below: Extraction : Variable costs per barrel of oil $ 12 Fixed costs per barrel of oil $ 4 Refining : Variable costs per barrel of oil $ 27 Fixed costs per barrel of oil $ 30 The Refining Division has been operating at a capacity of 40 comma 200 barrels a day and usually purchases 26 comma 000 barrels of oil from the Extraction Division and 15 comma 900 barrels from other suppliers at $ 57 per barrel. What is the transfer price per barrel from the Extraction Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 120 % of full costs? A. $ 82.80 B. $ 19.20 C. $ 46.00 D. $ 16.00

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Answers (1)

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Iliana Best · Answer 1

Transfer price = $19.2

Explanation:

The transfer price is the price at which goods are exchanged between the divisions of the same group.

The transfer price is stated to be 120% of the full cost

Full cost of extraction = Variable cost + fixed cost

= $ 12 + $ 4 = $16 per barrel

Transfer price = 120% * $16 = $19.2