CalGen is an oil refinery company. CalGen buys Brent crude oil from Saudi Arabia in barrels of 160 litres each, at $115 per barrel. You may assume that the rand/dollar exchange rate is R9.20 for every dollar. Crude oil contains substances that need to be removed because they would damage an engine or other machinery. It must thus first be cleaned by removing sulphur, nitrogen, oxygen, water and other trace substances and then dispose of them safely.Barrels of crude oil are cleaned in batches of 100 barrels at a time. The cost of cleaning 100 barrels is R30 000 in supervision and labour, and R45 000 in other overheads.

The next step in separating oil into useful products involves heating it to a about 350 Celsius. It is then pumped into a fractioning tower. The vaporized oil rises up the tower through trays with holes in them. As the gas cools, its components condense back into several distinct liquids. The cost of vaporizing 100 barrels is R15 000 in supervision and labour, and R20 000 in other overheads. At the end of the cleaning and vaporizing process 100 barrels of Brent crude oil render two joint products with the following statistics:

9 600 litres of Raw petroleum

• Raw petroleum is used for either leaded or unleaded petrol used in most motor vehicles.
• Raw petroleum undergoes a distillation process, in order to be converted into leaded or unleaded petrol. The costs of converting raw petroleum into either leaded or unleaded petrol are R1.50 per litre of input.
• Leaded or unleaded petrol is sold at R12.00 per litre.
• 9 600 litres of raw petroleum renders 9 300 litres of "leaded or unleaded petrol (a small amount of wastage occurs in the distillation process).

6 400 litres of Kerosene

• Kerosene is used for Jet fuel used in aircrafts
• Kerosene undergoes a process called alkylation, whereby large hydrocarbon molecules existing in Kerosene are broken down into smaller ones, making the end product runnier and appropriate for use as Jet fuel.
• The costs of alkylation are R7.50 per litre of input.
• Jet fuel petrol is sold at R40.00 per litre.
• 6 400 litres of Kerosene renders 6 200 litres of Jet fuel (a small amount of wastage occurs in the alkylation process).

Raw petroleum could be sold before distillation at R 5.50 per litre and Kerosene could be sold before alkylation at R 18 per litre.

REQUIRED

1. Calculate the total joint costs to be allocated to Raw petroleum and Kerosene. Your calculations should be based on 100 barrels of Brent crude oil

2. If Calgen wishes to allocate the joint costs to the final products in such a way that the gross profit margin percentage is the same on the Raw Petroleum, as it is on the Kerosene, calculate the amount of the joint costs to be allocated to the 9600 litres of raw petroleum.

3.Allocate the joint costs to raw petroleum and kerosene respectively according to the sales value at split off method