Company A produces two productsmethanol (wood alcohol) and turpentine -- in a joint process. Joint costs amount to $125,000 per batch of output. Each batch totals 13,500 gallons, made of 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, $11 per gallon; turpentine, $3 per gallon. Methanol sells for $22 per gallon. Turpentine sells for $16 per gallon.

The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be $42 a gallon. Additional processing would increase separable costs by $12 per gallon (in addition to the $11 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage.

Requirement:Under the following assumptions, calculate the gross margin (in total $) of theturpentine product.

1. The firm chooses its product mix to maximizes operating profit.
2. Joint cost is allocated on an NRV basis.
3. There are no beginning or ending inventories.