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 $ 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

Answer 1

Transfer price = $19.2

Step-by-step 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