Question

Physical Units Method, Relative Sales Value Method Farleigh Petroleum, Inc., is a small company that acquires high-grade crude oil from low volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Farleigh Petroleum does not have the technology or capacity to process these products further and sells most of its output cach month to major refineries. There were no beginning finished goods or work-in-process inventories on April 1. The production costs and output of Farleigh Petroleum for April are as follows: Crude oil placed into production $6,500,000 Direct labor and related costs 1,400,000 Manufacturing overhead 3,000,000 Data on barrels produced and selling price: Two Oil, 300,000 barrels produced; sales price, $45 per barrel Six Oil, 170,000 hartels produced; sales price, $25 per barrel Distillates, 80.000 harrels produced; sales price, $14 per barrel Required: 1. Calculate the amount of joint production cost that Farleigh Petroleum would allocate to each of the three joint products by using the physical units method. (Carry out the ratio calculation to four decimal places. Round allocated costs to the nearest dollar.) Allocated Joint Cost Two Oil 5,949,455 x Six Oil 3,369,091 Distillates 1,585,455 Total $10,900,000 x (Note: The total of the allocated costs does not equal $10,900,000 due to rounding error.) 2. Calculate the amount of joint production cost that Farleigh Petroleum would allocate to each of the three joint products by using the relative sales value method. (Carry out the ratio calculation to four decimal places. Round allocated costs to the nearest dollar.) Allocated Joint Cost Two Oil 7,798,092 X Six Oil 2,454,955 x Distillates 646,953 Total $10,900,000

Answer 1

Question 1 Allocated Joint Cost Two Oil $ 59,45,950 (0.5455*$10,900,000) Six Oil $ 33,69,190 (0.3091*$10,900,000) | Distillates $ 15,85,950 (0.1455*$10,900,000) Total $ 1,09,01,090 Question 2 Allocated Joint Costs Two Oil $ 77,97,860 (0.7154*$10,900,000) Six Oil $ 24,54,680 (0.2252*$10,900,000) Distillates $ 6,47,460 (0.0594*$10,900,000) Total $ 1,09,00,000