9-9. Sell at Split-Off Versus Process Further. Rifki Refining produces naphtha,
ID: 2582489 • Letter: 9
Question
9-9. Sell at Split-Off Versus Process Further. Rifki Refining produces naphtha, kero- sene, and other distillates from a joint process costing $120,000 for a certain volume of crude oil. From this process, 1,000 barrels of naphtha can be produced and are allocated $35,000 of joint costs. This can be sold at the split-off point for $60 per barrel or further processed into other products and sold for $85 per barrel. The pro- cessing cost for further refining 1,000 barrels of naphtha is $20,000. The other distillates can be sold now for $80,000 or processed further for $40,000 and sold for $110,000. Kerosene can be sold for $60,000 at the split-off point. Kero- sene is also allocated $35,000 of the joint costs. Other distillates are allocated the remaining joint costs. Questions: 1. 2. Which products should be sold at the split-off point or processed further? What is the most the company can pay for crude oil and not lose money on the refin- ing process?Explanation / Answer
1)
since no information is given for kerosine ,it will sold at split off
2)Amount to pay for crude oil and not lose money on refining process is the maximum profit a company can earn from all this products
Profit :
Naphtha :(85*1000)-20000= 65000
other distillates = 80000
kerosine :60000
Total profit:205000
Most the company can pay for crude oil is $ 205000
naphtha other distillates Selling price after further processing 85000 [85*1000] 110000 less:Further processing cost -20000 -40000 opportunity cost for not selling at split off -60000 [60*1000] -80000 Profit /(loss)from further processing 5000 -10000 Result Further processed since profitable sold at split offRelated Questions
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