The Sesnie Spirits Company produces two products-methanol (wood alcohol) and turpentineby a joint process. Joint costs amount to $118,000 per batch of output. Each batch totals 12,000 gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, $3 per gallon, and turpentine, $2 per gallon. Methanol sells for $20 per gallon. Turpentine sells for $13 per gallon. Read the requirements Requirement 1. How much of the joint costs per batch will be allocated to methanol and to turpentine, assuming that joint costs are allocated based on the number of gallons at splitoff point? (Round the weights to five decimal places.) Methanol Turpentine Total Physical measure of total production 3,000 9,000 12,000 Weighting 0.25000 0.75000 1.00000 Joint costs allocated 29,500 $ 88,500 $ 118,000 Requirement 2. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to methanol and to turpentine? (Round the weights to five decimal places.) Methanol Turpentine Total Final sales value of total production $ 60,000 $ 117,000 $ 177,000 Deduct separable costs 9,000 18,000 $ 51.000 $ 99,000 $ 150,000 NRV at splitoff point Weighting 0.34000 0.66000 1.00000 Joint costs allocated $ 40,120 $ 77,880 $ 118,000 27,000 Requirement 3. Prepare product-line income statements per batch for requirement 1 and 2. Assume no beginning or ending inventories. (For entries with a $0 balance, make sure to enter "0" in the appropriate column.) Begin with the physical-measure method. Begin with the physical-measure method. Methanol Turpentine Total $ 60,000 $ 117,000 $ 177,000 Revenue Cost of goods sold Joint costs Separable costs Total cost of goods sold Gross margin 29,500 9,000 88,500 18,000 118,000 27,000 145,000 32,000 38,500 106,500 $ 21,500 $ 10,500 $ Now show the operating income for both products using the NRV method. Methanol Turpentine Total $ 60,000 $ 117,000 $ 177,000 Revenue Cost of goods sold Joint costs Separable costs Total cost of goods sold Gross margin 40,120 9,000 77,880 18,000 118,000 27,000 145,000 32,000 49,120 95,880 $ 10,880 $ 21,120 $ Requirement 4. The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be $70 a gallon. Additional processing would increase separable costs $11 per gallon (in addition to the $3 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage. Assuming no other changes in cost, what is the joint cost applicable to the wood alcohol (using the NRV method)? Should the company produce the alcoholic beverage? Show your computations. Begin by calculating the joint cost applicable to the wood alcohol (using the NRV method). (Round the weights to five decimal places.) Alcohol Bev. Turpentine Total Final sales value of total production Deduct separable costs NRV at splitoff point Weighting Joint costs allocated Enter any number in the edit fields and then click Check
