Rieppel Oil & Gas, a large energy conglomerate, jointly processes purchased A federal law that has recently been passed taxes crude oil at 30% of operating hydrocarbons to generate three nonsalable intermediate products: ICR8, ING4, income. No new tax is to be paid on natural gas liquids or natural gas. and XGE3. These intermediate products are further processed separately to i (Click the icon to view additional information.) produce crude oil, natural gas liquids (NGL), and natural gas (measured in liquid equivalents). Read the requirements. (Click the icon to view the overview.) Requirement 1. Allocate the August 2020 joint cost among the three products using the (a) Physical-measure method and (b) NRV method. First, allocate the August 2020 joint cost using the physical-measure method. (Round the weights to five decimal places and joint costs to the nearest cent.) Crude Oil NGL Gas Total Physical measure of total production Weighting Joint costs allocated- X Overview of the process and results. An overview of the process and results for August 2020 are shown here (Note: The numbers are small to keep the focus on key concepts.) Joint Costs Separable Costs $1,900 Crude Oil Processing ICRS 150 barrels (@ $130 $20 per barrel NGL Hydrocarbons Processing Processing ING4 125 barrels (@ $125 $19 per barrel Natural Gas Processing 975 eqvt. barrels (@ XGE3 $235 $1.40 per eqvt. barrel Print DoneX Requirements 1. Allocate the August 2020 joint cost among the three products using the following: a. Physical-measure method b. NRV method. 2. Show the operating income for each product using the methods in requirement 1. 3. Discuss the pros and cons of the two methods to Rieppel Oil & Gas for making decisions about product emphasis (pricing, sell-or-process- further decisions, and so on). Print DoneRequirement 1. Allocate the August 2014 joint cost among the three products using the (a) Physical-measure method and (b) NRV method. First, allocate the August 2014 joint cost using the physical-measure method. (Round the weights to five decimal places and joint costs to the nearest cent.) Crude Oil NGL Gas Total Physical measure of total production Weighting Joint costs allocated Now allocate the joint cost among the three products using the NRV method. (Round the weights to five decimal places and joint costs to the nearest cent.) Crude Oil NGL Gas Total Final sales value of total production Deduct separable costs Now allocate the joint cost among the three products using the NRV method. (Round the weights to five decimal places and joint costs to the nearest cent.) Crude Oil NGL Gas Total Final sales value of total production Deduct separable costs NRV at splitoff Weighting Joint costs allocatedRequirement 2. Show the operating income for each product using the methods in requirement 1. Begin with the physical-measure method. (Use parentheses or a minus sign for negative gross margins. Enter the joint costs to the nearest cent.) Crude Oil NGL Gas Total Revenue Cost of goods sold Joint costs Separable costs Total cost of goods sold Gross margin Now show the operating income for each product using the NRV method. (Use parentheses or a minus sign for negative gross margins. Enter the joint costs to the nearest cent.) Crude Oil NGL Gas Total Revenue Cost of goods sold Joint costs Separable costs Total cost of goods sold Gross margin Requirement 3. Discuss the pros and cons of the two methods to Sweeney Oil & Gas for making decisions about product emphasis (pricing, sell-or-process-further decisions, and so on). used for product emphasis decisions. It is to use joint-cost-allocated data to make decisions regarding dropping individual products, or pushing individual products. Product-emphasis decisions should be made based on
