Mega Petroleum has two divisions, each operating as a profit center. The transportation division purchases crude oil in Venezuela, and transports it from Venezuela to Chicago, Illinois. The reefing division process crude oil into gasoline
The cost-based transfer price is 106% of full cost. The contract price of $75 per barrel of crude oil is based on market price in Chicago. The market price per barrel of crude oil supplied to the refining division is $90. The managerial accountant reported the following information?
Transportation Division
Variable cost per barrel of crude oil $2
Fixed cost per barrel of crude oil $4
Full cost per barrel of crude oil $6
Refining Division
Variable cost per barrel of gasoline $9
Fixed cost per barrel of gasoline $7
Full cost per barrel of gasoline $16
Required
Compute the cost-based transfer prices at 106% of full cost of the crude oil purchased in Venezuela, plus the transportation division's variable and fixed costs.
A) $80.86
B) $82.86
C) $85.86
D) $87.86
E) $90.86
C
Explanation: C) [1.06 × ($75 + $2 + $4)] = $85.86
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