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: 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: i) marketpricetransfers ii) costplustransfers iii) negotiatedpricetransfers

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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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:

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:

i) marketpricetransfers
ii) costplustransfers
iii) negotiatedpricetransfers

 

 

 
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