Question

1) 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 $10 Fixed costs per barrel of oil $8 Refining: Variable costs per barrel of oil $26 Fixed costs per barrel of oil $38 The Refining Division has been operating at a capacity of 40,300 barrels a day and usually purchases 25,400 barrels of oil from the Extraction Division and 15,100 barrels from other suppliers at $64 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 130% of full costs?

a) 23.40

b) 21.60

c) 83.20

d) 13.00

e) 10.40

Answer 1