Use the information below to answer the following question(s).Blackoil Corp.has two divisions, Refining and Production.The company's primary product is Clean Oil.Each division's costs are provided below:
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.
-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

Question

Use the information below to answer the following question(s).Blackoil Corp.has two divisions, Refining and Production.The company's primary product is Clean Oil.Each division's costs are provided below:
  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.
-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

Quizplus · Accepted Answer

If the market price method of pricing is used for transfer price, then the transfer price per litre from production to refining will be equal to the selling price of oil in the market, which is $24 per litre. Therefore, the correct answer is option A.

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