Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $6 per barrel

ACCOUNTING

Multiple Choice

Dakoil Corporation has two divisions, Refining and Production. The company's primary product is Enkoil Oil. Each division's costs are provided below:


Production: Variable costs per barrel of oil $ 3

Fixed costs per barrel of oil $ 2

Refining: Variable costs per barrel of oil $10

Fixed costs per barrel of oil $12


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 Production Division and 15,000 barrels from other suppliers at $20 per barrel.


Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $6 per barrel. The Refining Division sells the 200 barrels at a price of $40 each to customers. What is the operating income of both divisions together?

a. $2,400

b. $2,600

c. $3,600

d. $6,800

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