Sesnie Oil & Gas, a large energy conglomerate, jointly processes purchased hydrocarbons to generate three nonsalable intermediate products: ICR8, ING4, and XGE3. These intermediate products are further processed separately to produce crude oil, natural gas liquids (NGL), and natural gas (measured in liquid equivalents).

An overview of the process and results for August 2017 are shown here (Note: The numbers are small to keep the focus on keyconcepts.)

$1,900			ICR8	Processing$130		Crude Oil200 barrels @$19 per barrel
Hydrocarbons	Processing		ING4	Processing$110		NGL125 barrels @$10 per barrel
			XGE3	Processing$220		Natural Gas925 eqvt. barrels @$1.20 per eqvt. barrel

A federal law that has recently been passed taxes crude oil at 30% of operating income. No new tax is to be paid on natural gas liquid or natural gas.

1.	Allocate the August 2017 joint cost among the three products using thefollowing:
	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 Sesnie Oil & Gas for making decisions about product emphasis (pricing, sell-or-process-further decisions, and so on).

i More Info Starting August 2017, Sesnie Oil & Gas must report a separate product-line income statement for crude oil. One challenge facing Sesnie Oil & Gas is how to allocate the joint cost of producing the three separate salable outputs. Assume no beginning or ending inventory