Joint cost allocation with costs after split-off and by-product revenue
Mega Oil Company transports crude oil to its refinery where it is processed into main products gasoline, kerosene, and diesel fuel, and by product base oil. The base oil is sold at the split-off for $500,000 of annual revenue, and the joint processing cost to the get the crude oil to split-off are $5,000,000. Additional information includes:
|
Product |
Barrels produced |
Cost of Split-off |
Selling Price per Barrel |
|
Gasoline |
500,000 |
2,000,000 |
25 |
|
Kerosene |
100,000 |
500,000 |
30 |
|
Diesel fuel |
250,000 |
1,000,000 |
20 |
Required:
Determine the allocation of joint costs, using the relative sales value method, (Hint: Reduce the amount of the joint costs to be allocated by the amount of the by-product Revenue)