How Does Beta Corporation Determine Transfer Price Per Barrel?
What is the transfer price per barrel from the extraction division to the refining division?
Based on the method used to place a value on each barrel of oil at 110% of full costs, what is the transfer price per barrel from the extraction division to the refining division?
The Transfer Price per Barrel from the Extraction Division to the Refining Division is $20.90
Extraction: Variable cost per barrel = $13 Fixed cost per barrel = $6 Full cost per barrel = Variable cost per barrel + Fixed cost per barrel = $13 + $6 = $19 Now, to determine the transfer price, we need to use the method of placing a value on each barrel of oil at 110% of full costs. This means that the transfer price per barrel should be 110% of the full cost per barrel for the extraction division, which is $19 x 1.1 = $20.90. Therefore, 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 110% of full costs, is $20.90.
When it comes to determining the transfer price per barrel from the extraction division to the refining division, Beta Corporation uses a method that involves valuing each barrel of oil at 110% of full costs. This takes into account both the variable and fixed costs associated with each division.
In this case, the extraction division incurs variable costs of $13 per barrel and fixed costs of $6 per barrel, resulting in a full cost of $19 per barrel. To calculate the transfer price, the full cost is then multiplied by 110% to arrive at a transfer price of $20.90 per barrel.
By using this method, Beta Corporation ensures that the transfer price reflects the full costs incurred by the extraction division, including both variable and fixed costs. This helps in determining a fair price for transferring oil between the two divisions while ensuring that all costs are accounted for.