Choosing an Appropriate Transfer Price. The Walker Oil Company has just decentralized its Refining and Marketing divisions. Refining is allowed to sell to outside wholesalers, while Marketing is permitted to buy from other refiners. Walker Oil produces only unleaded gasoline at a variable refinery cost of \(\$ 0.30\) per gallon and a fixed refining cost of \(\$ 160,000\) per month for a capacity of 400,000 gallons. The market price in the intermediate market is \(\$ 1.00\) per gallon. Marketing sells the fuel to independent service stations at \(\$ 1.20\) per gallon and incurs transportation costs of \(\$ 0.10\) per gallon.

\section*{Required:}

Assuming all refined gallons are sold to Marketing, show the impacts on profits for Refining, Marketing, and Walker Oil Company as a whole when using each of the following transfer prices:

(a) variable cost,

(b) market price, and

(c) full cost. What conclusion can you draw?