Question
Oil Corp. has two divisions, Refining and Production. The company's primary product is Clean Oil. Each division's costs are provided below: Refining: Variable costs per
Oil Corp. has two divisions, Refining and Production. The company's primary product is Clean Oil. Each division's costs are provided below:
Refining: | Variable costs per litre of oil | $30 |
| Fixed costs per litre of oil | $24 |
|
|
|
Production: | Variable costs per litre of oil | $6 |
| Fixed costs per litre of oil | $4 |
The Production Division is able to sell the oil to other areas for $24 per litre. The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre.
1) What is the transfer price per litre assuming the method used is 175% of variable costs?
A) $10.50
B) $12.00
C) $17.50
D) $24.50
E) $12.50
2) What is the transfer price per litre from the Production Division to the Refining Division assuming the method is 120% of full costs?
A) $16.80
B) $12.00
C) $9.50
D) $7.20
E) $12.50
3) What is the transfer price per litre from production to refining if the market price method of pricing is used?
A) $24
B) $32
C) $36
D) $40
E) $38
4) What is the Production Division's operating income per 200 litres of oil reported under the 175% of variable costs method?
A) $1,500
B) $880
C) $100
D) $(100)
E) $1,200
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started