Axelia Corporation has two divisions, Refining and Extraction. The company\'s pr

Question

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

Extraction:

Variable costs per barrel of oil $ 17$17

Fixed costs per barrel of oil $ 12$12

Refining:

Variable costs per barrel of oil $ 36$36

Fixed costs per barrel of oil $ 39$39

The Refining Division has been operating at a capacity of

40 comma 20040,200

barrels a day and usually purchases

26 comma 00026,000

barrels of oil from the Extraction Division and

15 comma 50015,500

barrels from other suppliers at

$ 75$75

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

115115%

of fullcosts?

Extraction:

Variable costs per barrel of oil $ 17$17

Fixed costs per barrel of oil $ 12$12

Refining:

Variable costs per barrel of oil $ 36$36

Fixed costs per barrel of oil $ 39$39

Explanation / Answer

Full Cost Of Extraction Division = VC + FC = $17 + $12 = $29

Transfer Price = $29 x 115% = $33.35

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