Bonzo Oil Co. and Crusty Petroleum, Inc., are entering a joint venture to construct and operate an oil refinery in a foreign country. This refinery will process crude oil in a joint process that results in multiple products, such as gasoline, jet fuel, asphalt, and petrochemicals that require further processing. The companies have determined to jointly create a corporation to operate the refinery and share its outputs and costs fairly. The joint venture will pay a royalty fee to the host country for each barrel of crude oil processed and will charge the costs of operations to Bonzo and Crusty. Ignore taxation, political issues, and technical processing considerations (all of which, by the way, are material).
Form small groups to design a costing system to allocate the costs of receiving crude oil, refining the crude oil, and distributing the products from the refinery that is both fair and informative to Bonzo and Crusty. Be prepared to present proposals in an open forum.