Question $9\mathrm{.}1($Total: $28$ marks$)$

Deep Sea Drilling Corp. has two divisions, Refining and Production. The company's primary

product is Clean Oil. Each division's costs are provided below:

Refining: Variable costs per litre of oil $$30$

Fixed costs per litre of oil $$24$

Production: Variable costs per litre of oil $$6$

Fixed costs per litre of oil $$4$

The Production Division is able to sell the oil to other areas for $$24$ per litre. The Refining

Division has been operating at a capacity of $80,000$ litres a day, using oil from the Production

Division and oil purchased from other suppliers. The Refining Division usually purchases $50,000$

litres of oil, on average, from the Production Division and $30,000$ litres, on average, from other

suppliers at $$40/$litre$.$

Required

What is the transfer price per litre assuming the method used is $175\%$ of variable

costs?

What is the transfer price per litre from the Production Division to the Refining

Division assuming the method is $120\%$ of full costs?

What is the transfer price per litre from production to refining if the market price

method of pricing is used?

What is the Production Division's operating income per $200$ litres of oil reported

under the $175\%$ of variable costs method?

What is the Refining Division's operating income if $150$ litres of oil are sold at $$110$

$/$litre and $200$ litres are transferred in$?$ Assume the transfer price is based on $175\%$

of variable costs