Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 24

PHYSICAL UNITS METHOD, RELATIVE SALES VALUE METHOD
Allen Petroleum, Inc., is a small company that acquires high-grade crude oil from lowvolume 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. Allen 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 Allen Petroleum for April are as follows:

Data on barrels produced and selling price:
Two Oil, 300,000 barrels produced; sales price, $25 per barrel
Six Oil, 170,000 barrels produced; sales price, $30 per barrel
Distillates, 80,000 barrels produced; sales price, $16 per barrel
Required:
1. Calculate the amount of joint production cost that Allen 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.)
2. Calculate the amount of joint production cost that Allen 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.)