Stenback 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 liquidequivalents).

An overview of the process and results for August 2017 are shown here

$2,000			ICR8	Processing$120		Crude Oil150 barrels @$22 per barrel
Hydrocarbons	Processing		ING4	Processing$100		NGL100 barrels @$11 per barrel
			XGE3	Processing$215		Natural Gas750 eqvt. barrels @$1.70 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. Starting August 2017, Stenback Oil & Gas must report a separate product-line income statement for crude oil. One challenge facing Stenback Oil & Gas is how to allocate the joint cost of producing the three separate salable outputs. Assume no beginning or ending inventory.

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 Stenback Oil & Gas for making decisions about product emphasis (pricing, sell-or-process-further decisions, and so on).