The Sesnie Spirits Company produces two products-turpentine and methanol(wood alcohol)-by a joint process. Joint costs amount to $121,000 per batch of output. Each batch totals 11,500 gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs aremethanol, $2 per gallon, and turpentine, $1 per gallon. Methanol sells for $20 per gallon. Turpentine sells for $15 per gallon.

Requirement 4. The company has discovered an additional process by which the methanol (wood alcohol) can be made into apleasant-tasting alcoholic beverage. The selling price of this beverage would be $65 a gallon. Additional processing would increase separable costs $8 per gallon (in addition to the $2 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 To help you to determine if the company should produce the alcoholic beverage, complete the following table. Incremental revenues Incremental costs: Added processing Taxes Incremental operating income (loss) from further processing