Petro-Edge Corporation manufactures specialized oils and lubricants for the aviation industry. One product group, manufactured in a joint production process, is the Lub-eez group (products A, B, and C) used for a variety of harsh climate lubrication conditions.

The company intends to manufacture 100,000 gallons of A, 60,000 gallons of B, and 40,000 gallons of C. Joint costs for this batch are $360,000. Costs after split-off are $80,000, $90,000, and $160,000, respectively for the three products.

Petro-Edge can sell A for $2 per gallon at the split-off or $3 per gallon if fully processed.

It can sell B for $3.50 per gallon at the split-off or $5 per gallon if fully processed.

It can sell C for $6 per gallon at the split-off or $9 per gallon if fully processed.

Show how Petro-Edge would allocate the joint production costs to the three products under:

1

Physical measure method (gallons)

2

Sales value at the split-off method

Determine which products Petro-Edge should fully process. Then show how Petro-Edge would allocate the joint production costs under the net realizable value method.

Prepare partial income statements for all three products under each allocation method. Assume that Petro-Edge fully processes when it should and does not fully process when it should not. Explain why the gross margin percentage changes across methods.

Petro-Edge Corporation manufactures specialized oils and lubricants for the aviation industry. One product group, manufactured in a joint production process, is the Lub-eez group (products A B, and C) used for a variety of harsh climate lubrication conditions. The company intends to manufacture 100,000 gallons of A, 60,000 gallons of B, and 40,000 gallons of C. Joint costs for this batch are $360,000. Costs after split-off are $80,000,$90,000, and $160,000, respectively for the three products. Petro-Edge can sell A for \$2 per gallon at the split-off or \$3 per gallon if fully processed. It can sell B for $3.50 per gallon at the split-off or $5 per gallon if fully processed. It can sell C for $6 per gallon at the split-off or $9 per gallon if fully processed. a Show how Petro-Edge would allocate the joint production costs to the three products under: 1 Physical measure method (gallons) 2 Sales value at the split-off method b Determine which products Petro-Edge should fully process. Then show how Petro-Edge would allocate the joint production costs under the net realizable value method. c Prepare partial income statements for all three products under each allocation method. Assume that Petro-Edge fully processes when it should and does not fully process when it should not. Explain why the gross margin percentage changes across methods