How to Achieve Cost Efficiency in Oil Division Operations

What is the transfer price per barrel from the Extraction Division to the Refining Division?

A. $82.80
B. $19.20
C. $46.00
D. $16.00

Answer:

Transfer price = $19.20

Running an efficient oil division operation is crucial for the success of a company like Axelia Corporation. By understanding and implementing the right transfer pricing strategy, the company can achieve cost efficiency and maximize profits.

The transfer price per barrel from the Extraction Division to the Refining Division is calculated based on the full cost of extraction, which includes both variable and fixed costs. In this case, the transfer price is set at 120% of the full cost, resulting in a transfer price of $19.20 per barrel.

By setting the transfer price at the right level, the company can ensure fair compensation for both divisions while also incentivizing cost control and efficiency. This approach not only benefits the company's bottom line but also promotes collaboration and coordination between the two divisions.

To achieve cost efficiency in oil division operations, it is essential to carefully analyze costs, set appropriate transfer prices, and monitor performance regularly. By following these steps, Axelia Corporation can optimize its operations and drive sustainable growth in the competitive oil industry.