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.

1a. Physical measure method - Allocation on the basis of Weight of the Production

Particulars	Crude oil	NGL	Gas	Total
Physical measure of total production	200	125	925	1250
Percentage (weight)	0.16	0.1	0.74	1
Joint costs allocated	304	190	1406	1900

1b. NRV Method - allocated on the basis of net realizable value at split off.

Particulars	Crude oil	NGL	Gas	Total
Physical measure of total production	200	125	925	1250
Rate	$ 19.00	$ 10.00	$ 1.20
Final sales of production	3800	1250	1110
Less: separable costs	130	110	220
NRV at split off percentage	3670	1140	890	5700
NRV at split off percentage (weight)	0.64	0.2	0.16	1
Joint costs allocated	1223	380	297	1900

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Please help with the following:

Requirement 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

Requirement 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. 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