Answer the following questions using the information below:
Penn Oil Corporation has two divisions, Refining and Production. 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 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.
-What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs?
A)$16.20
B)$27.00
C)$54.00
D)$70.20

Question

Answer the following questions using the information below:
Penn Oil Corporation has two divisions, Refining and Production. 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 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.
-What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs?
A)$16.20 
B)$27.00 
C)$54.00 
D)$70.20

Quizplus · Accepted Answer

The transfer price per barrel from the Production Division to the Refining Division is 180% of variable costs. The variable cost per barrel is $9.00. Therefore, the transfer price per barrel is 180% of $9.00, which is $16.20.

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