Question 3

Petron Bhd, is a small company that requires high-grade crude oil from low-volume 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. Petron does not have technology or

capacity to process these products further and sells most of its output each month to major

refineries. There was no beginning finished goods or work-in-progress inventories on

November 1.

The production costs and output of Petron for November are as follows:

Crude oil acquired and placed into production RM5,000,000

Direct labour and related costs RM2,000,000

Manufacturing overhead RM 3,000,000

Production and sales:

Two Oil, 300,000 barrels produced, 80,000 barrels sold at RM20 each.

Six Oil, 240,000 barrels produced, 120,000 barrels sold at RM30 each.

Distillates, 120,000 barrels produced and sold at RM15 each.

Segregate and calculated the amount of joint production cost that Petron

would allocate to each of the three joint products by using physical unit method and relative

sales value method. (10 marks)