Answer the Following Questions Using the Information Below:
Axelia Corporation

question 145

Multiple Choice

Answer the following questions using the information below:
Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:
$$\begin{array} { l c c } \text { Extraction: } & \text { Variable costs per barrel of oil } & \$ 7 \\& \text { Fixed costs per barrel of oil } & \$ 5 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 28 \\& \text { Fixed costs per barrel of oil } & \$ 32\end{array}$$ The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Extraction Division and 15,000 barrels from other suppliers at $60 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 180% of variable costs?

• A) $12.60
• B) $21.60
• C) $72.00
• D) $130.00

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Definitions:

Accrued Interest

Interest that has been incurred but not yet paid, often related to bonds or loans.

Bond Issue Costs

The expenses associated with the issuance of bonds, including legal, accounting, underwriting fees, and other related costs.

Straight-Line Method

A method of calculating depreciation by evenly allocating the cost of an asset over its useful life.

Effective Interest Method

A technique used in accounting to allocate the interest expense or income of a financial instrument over its lifespan in a way that results in a constant rate on the carrying amount.