Answer the Following Questions Using the Information Below:
Axelia Corporation

question 9

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.
-Assume 200 barrels are transferred from the Extraction Division to the Refining Division for a transfer price of $18 per barrel.The Refining Division sells the 200 barrels at a price of $120 each to customers.What is the operating income of both divisions together?

• A) $7,200
• B) $9,600
• C) $10,800
• D) $20,400

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Definitions:

Price Sensitivity

The degree to which the demand for a product is affected by changes in its price.

Vertical

Refers to the integration of multiple stages of production and distribution within the same company.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good that buyers are willing to purchase.

Marginal Value

Refers to the additional benefit derived from consuming or producing one more unit of a good or service.