Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
$$\begin{array} { l l r }
\text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \
& \text { Fixed costs per barrel of oil } & \$ 2 \
\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \
& \quad \text { Fixed costs per barrel of oil } & \$ 12
\end{array}$$
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 profit of both divisions together?
A)$2400
B)$2600
C)$6800
D)$3600

Question

Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
 $$\begin{array} { l l r } 
\text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \
& \text { Fixed costs per barrel of oil } & \$ 2 \
\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \
& \quad \text { Fixed costs per barrel of oil } & \$ 12
\end{array}$$
 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 profit of both divisions together?
A)$2400
B)$2600
C)$6800
D)$3600

Quizplus · Accepted Answer

The operating profit for both divisions together is calculated by subtracting the total cost from the total revenue. The total revenue from selling 200 barrels at $40 each is 200 * $40 = $8000. The total cost is the transfer price of 200 barrels at $6 each, which is 200 * $6 = $1200. Therefore, the operating profit is $8000 - $1200 = $6800. However, the $1200 is an internal transfer and not an actual cost to the company as a whole, so it should not be subtracted from the total revenue when calculating the combined operating profit. Thus, the operating profit for both divisions together remains at $8000 from sales to external customers, but since there's no option matching $8000 and considering the context of the question, it seems there's a misunderstanding in the calculation process. Given the options, the correct calculation for the operating profit combining both divisions, considering internal transfers as costs, would incorrectly lead to the answer provided in the options. The correct approach without considering internal transfers would not deduct the $1200, but since that's not reflected in the options, we'll clarify the intended correct calculation based on the provided options:The total revenue from sales is $8000 (200 barrels * $40 each). The cost of the barrels transferred is not an external cost but an internal transfer price, which should not affect the total operating profit of both divisions combined when considering external transactions only. However, given the misunderstanding in the premise, the correct answer based on the options provided and assuming the question implies considering the transfer price as a cost, would be to find the difference between the revenue and the internal transfer cost, which has been mistakenly overlooked. The correct calculation directly based on the options provided cannot be determined without assuming an error in the question's premise or a misunderstanding in the explanation. Therefore, the explanation intended to calculate the profit by subtracting the internal transfer cost from the revenue, which is not the standard method for calculating combined operating profit in a scenario involving internal transfers.

Answer the Following Questions Using the Information Below: Bass Strait

Answer the Following Questions Using the Information Below:
Bass Strait