The Wood Spirits Company produces two productsturpentine and methanol (wood alcohol) by a joint process. Joint costs amount to $120,000 per batch of output. Each batch totals10,000 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 $21 per gallon. Turpentine sells for $14 per gallon.

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 $ 60 a gallon. Additional processing would increase separable costs $ 9 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 Beverage	Turpentine	Total
Final Sales Volume of total production
Deduct separable cost
NRV at split-off point
Weighting
Joint Cost Allocated

To help you to determine if the company should produce the alcoholic beverage, complete the following table.

Incremental revenues:		$150,000
Incremental costs:
Added processing	($142,142)
Taxes	($30,000)
Incremental Operating Income (Loss) from further processing		(23,143)

The Company (should or should not) produce the alcohol beverage, because there is an (operating income or operating loss) from further processing.

Can someone explain the 1st portion and verify the 2nd portion please?