St. Thomas 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). (Click the icon to view the overview.) 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. (Click the icon to view additional information.) More Info Read the requirements Requirement 1. Allocate the August 2017 joint cost among the three products using the (a) Physical-measure method and (b) NRV method. First, allocate the August 2017 joint cost using the physical-measure method. (Round the weights to five decimal places and joint costs to the nearest cent.) Starting August 2017, St. Thomas Oil & Gas must report a separate product-line income statement for crude oil. One challenge facing St. Thomas Oil & Gas is how to allocate the joint cost of producing the three separate salable outputs. Assume no beginning or ending inventory. Crude Oil NGL Gas Total Overview of the process and results. Physical measure of total production Weighting Joint costs allocated Print Done Done Requirements An overview of the process and results for August 2017 are shown here (Note: The numbers are small to keep the focus on key concepts.) Joint Costs Separable Costs $1,600 Crude Oil Processing ICRS 175 barrels @ $210 $22 per barrel 1. Hydrocarbons Processing ING4 Processing $90 Allocate the August 2017 joint cost among the three products using the following: a. Physical-measure method b. NRV method. Show the operating income for each product using the methods in requirement 1. Discuss the pros and cons of the two methods to St. Thomas Oil & Gas for making decisions about product emphasis (pricing, sell-or-process- further decisions, and so on). NGL 75 barrels @ $13 per barrel 2. 3. XGE3 Processing $235 Natural Gas 550 eqvt. barrels @ $1.50 per eqvt. barrel