Question

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 $14 Fixed costs per barrel of oil $5 Refining: Variable costs per barrel of oil $27 Fixed costs per barrel of oil $31 The Refining Division has been operating at a capacity of 40,200 barrels a day and usually purchases 25,100 barrels of oil from the Extraction Division and 15,600 barrels from other suppliers at $58 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 180% of variable costs

Answer 1

Answer: $25.20

Step-by-step explanation:

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 180% of variable costs will be calculated thus:

Variable cost of extraction division = $14

Transfer price will now be:

= 180% × $14

= 180/100 × $14

= 1.8 × $14

= $25.20