Transferring 20,000 barrels of crude oil from the transportation division to the refining division at the variable cost of $80 per barrel achieves goal congruence, as shown in the preceding section. The refining division would buy from the transportation division because the transportation division’s variable cost is less than the $85 price charged by external suppliers. Setting the transfer price equal to the variable cost has other benefits. Knowing the variable cost per barrel of crude oil helps the refining division make many decisions such as the short-run pricing decisions discussed in Chapter 12. However, at the $80-per-barrel transfer price, the transportation division would record an operating loss and the refining division would show a large profit because it would be charged only for the variable costs of the transportation division. One approach to addressing this problem is to have the refining division make a lump-sum transfer payment to cover the fixed costs and generate some operating income for the transportation division while the transportation division continues to make transfers at the variable cost. The fixed payment is the price the refining division pays for using the capacity of the transportation division. The income earned by each division can then be used to evaluate the performance of each division and its manager.