Physical Units Method, Relative Sales Value Method Farleigh Petroleum, Inc., is
ID: 2455338 • Letter: P
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 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: Data on barrels produced and selling price: Two Oil, 300,000 barrels produced; sales price, $45 per barrel Six Oil, 170,000 barrels produced; sales price, $25 per barrel Distillates, 80,000 barrels produced; sales price, $14 per barrel 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
Solution:
Total Joint Cost Crude oil Cost 6,500,000 Direct Labor cost 1,400,000 Manufacturing overhead 300,000 Total Joint Cost 8,200,000