Red Oil Corp. has two divisions, Refining and Production. The company's primary product is Clean...
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Accounting
Red 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.
What is the transfer price per litre assuming the method used is 175% of variable costs?
Select one:
a. $17.50
b. $24.50
c. $12.50
d. $10.50
e. $12.00
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