Sweeney Oil & Gas, a large energy conglomerate, jointly processes purchased hydr

Question

Sweeney Oil & Gas, a large energy conglomerate, jointly processes purchased hydrocarbons to generate three nonsaleable intermediate products: ICR8, ING4, and XGE3. These intermediate products are further processed separately to produce crude oil, natural gas liquids (NGL), and natural gas (measured in liquid equivalents). An overview of the process and results for August 2014 are shown here (Note: The numbers are small to keep the focus on key concepts.) (Click the icon to view the overview.) A new federal aw has recently been passed that taxes crude oil at 30% of Operating inc n No ne tax s to e ad on natural gas qui orna ural gas arting August 20 . Sweeney Oil & Gas must report a separate product-ine income statement for crude oil. One challenge facing Sweeney Oil & Gas is how to allocate the joint cost of producing the three separate saleable outputs. Assume no beginning or ending inventory. Read the requirements

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

NRV method is used for product emphasis decesions. It is NRV method to use joint cost allocated data to make decisions regarding dropping individual products. Product emphasis decesions should be made based on NRV method.

Allocation of Joint Cost - Physical measure method Particulars Crude Oil NGL Gas Total Physical measure of total production 150 100 750 1000 Weighting 0.15 0.1 0.75 1 Allocation of Joint Cost $255.00 $170.00 $1,275.00 $1,700.00

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