For an output of 100 barrels of crude oil, produce profit statements indicating revenues, total costs including transferred in costs and profits for each division using: iii) negotiated prices (from production to transport at $10 a barrel and from transport to refining at $16.75 a barrel) b. Advise the Directors of the advantages and disadvantages of the following transfer pricing practices: i) marketpricetransfers ii) costplustransfers iii) negotiatedpricetransfers
For an output of 100 barrels of crude oil, produce profit statements indicating revenues, total costs including transferred in costs and profits for each division using: iii) negotiated prices (from production to transport at $10 a barrel and from transport to refining at $16.75 a barrel) b. Advise the Directors of the advantages and disadvantages of the following transfer pricing practices: i) marketpricetransfers ii) costplustransfers iii) negotiatedpricetransfers
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
Scala Oil has the following information available regarding its three divisions: production, transportation and refining:
Production (crude oil) | Transportation (Crude oil) | Refining (petrol) |
Variable costs: $2/barrel (of oil) | Variable costs: $1/barrel | Variable costs: $8/barrel |
Fixed costs: $6/barrel Full Cost: $8/barrel | Fixed costs: $3/barrel Full Cost: $4/barrel | Fixed costs: $6/barrel Full Cost: $14/barrel |
The division sells to the transport division. The external market will pay $13 a barrel. | The division buys from the production division and sells to the refining division; the market price is $18 a barrel | The external market will pay $52 a barrel. It refines at a rate of 2 barrels of crude oil to 1 barrel of petrol. |
a
For an output of 100 barrels of crude oil, produce profit statements indicating revenues, total costs including transferred in costs and profits for each division using:
iii) negotiated prices (from production to transport at $10 a barrel and from transport to refining at $16.75 a barrel)
b.
Advise the Directors of the advantages and disadvantages of the following transfer pricing practices:
i) marketpricetransfers
ii) costplustransfers
iii) negotiatedpricetransfers
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