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Assuming your answers to Question $3$ are correct and using Exhibit $2,$ make a recommendation of how much asphalt base should be sold in$-$house and at what price.

Question $3$ Information

Asphalt base is also a product of crude oil refining and is used to make a product called binder that is shipped out as a finished product from the Asphalt Division of MesoPetrolia. The binder product is sold to construction companies and is added to aggregate $($sand$-$gravel$)$ on construction sites to make roads.

This Asphalt Division prefers to purchase raw asphalt base from Murad$$s Division but can buy their raw materials from a different supplier for $$1\mathrm{.}15$ per litre. They could be persuaded to offer Murad the same price but will not pay more. Similarly, Murad prefers to sell to their in$-$house Asphalt Division, but can sell to international asphalt makers on the open market. The conversion cost of turning asphalt base into binder is $$0\mathrm{.}15$ per litre and asphalt binder is sold by the barrel for $$320$ per barrel.

Question $3$ Answers

Cost per Barrel

$$75$

Production Cost

$$0\mathrm{.}62$ per litre of asphalt base

Murad$$s Division: Contribution $($$$1\mathrm{.}15)$

$$0\mathrm{.}53$ per litre

Asphalt Division: Contribution $($$$1\mathrm{.}15)$

$$0\mathrm{.}70$ per litre

Murad$$s Division: Contribution $($$$1\mathrm{.}20)$

$$0\mathrm{.}58$ per litre

Asphalt Division: Contribution $($$$1\mathrm{.}20)$

$$0\mathrm{.}65$ per litre

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