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
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
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter17: Activity Resource Usage Model And Tactical Decision Making
Section: Chapter Questions
Problem 31P: Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The...
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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:
i) market prices transfer pricing.
ii) cost plus transfer pricing (cost plus 10%).
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:
o marketpricetransfers
o costplustransfers
o negotiatedpricetransfers
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