Petro-Chem, Inc., is a small company that acquires high-grade crude oil from lowvolume production wells owned by
Question:
Petro-Chem, Inc., is a small company that acquires high-grade crude oil from lowvolume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Petro-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning finished goods or work-in-process inventories on November 1. The production costs and output of Petro-Chem for November are as follows:
Production and sales:
Two Oil, 300,000 barrels produced; 80,000 barrels sold at $20 each.
Six Oil, 240,000 barrels produced; 120,000 barrels sold at $30 each.
Distillates, 120,000 barrels produced and sold at $15 per barrel.
Required:
1. Calculate the amount of joint production cost that Petro-Chem would allocate to each of the three joint products by using the physical units method. (Carry out the ratio calculation to four decimal places.)
2. Calculate the amount of joint production cost that Petro-Chem would allocate to each of the three joint products by using the relative sales value method.
Step by Step Answer:
Cost Management Accounting And Control
ISBN: 9780324233100
5th Edition
Authors: Don R. Hansen, Maryanne M. Mowen