Farleigh Petroleum, Inc., is a small company that acquires high-grade crude oil

Question

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 each 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: 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.) 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.)

Explanation / Answer

Ans 1 Two Oil Six Oil Distillates Physical measurement( In Barrels) 300000 170000 80000 Joint Cost Raw material         65,00,000.00 Direct Labor         14,00,000.00 Factory OH         30,00,000.00 Total Allocated       109,00,000.00     59,45,454.55 33,69,090.91 15,85,454.55 Ans 2 Relative Sales Value Method Two Oil Six Oil Distillates Net Sales Price 300000*45 170000*25 80000*14 135,00,000.00 42,50,000.00 11,20,000.00 Joint Cost Raw material         65,00,000.00 Direct Labor         14,00,000.00 Factory OH         30,00,000.00 Total Allocated       109,00,000.00     77,98,092.21 24,54,954.95     6,46,952.84

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