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Molo Oil Company produces gasoline, home heating oil, and jet fuel from crude oil in a joint processing operation. Joint processing costs up to the
Molo Oil Company produces gasoline, home heating oil, and jet fuel from crude oil in a joint processing operation. Joint processing costs up to the split-off point total $300,000 per month. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: Product Selling Price Gasoline $10.00 per gallon Heating Oil $ 4.00 per gallon Jet Fuel $16.00 per gallon Monthly Output 11,000 gallons 17,300 gallons 2, 200 gallons Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: Product Gasoline Heating Oil Jet Fuel Additional Processing Costs $48, 250 $68,055 $23,780 Selling Price $14.10 per gallon $ 9.10 per gallon $ 23.10 per gallon Required: 1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? 2. Based on your analysis in requirement 1, which product or products should be sold at the split-off point and which product or products should be processed further
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