Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:

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?
A) $25.20
B) $34.20
C) $77.00
D) $138.60

Question

Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:

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?
A) $25.20 
B) $34.20 
C) $77.00 
D) $138.60

Quizplus · Accepted Answer

Transfer price = 1.8 × $14 = $25.20

Axelia Corporation Has Two Divisions, Refining and Extraction