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Molo Oil Company produces gasoline, home heating oil, and jet fuel from crude oil in a joint processing operation. Joint processing costs up to the split-off point total $385,000 per month. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: Product Selling Price Monthly Output Gasoline $ 27.00 per gallon 14,400 gallons Heating Oil $ 21.00 per gallon 22,400 gallons Jet Fuel $ 33.00 per gallon 5,600 gallons Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: Product Additional Processing Costs Selling Price Gasoline $ 89,220 $ 32.80 per gallon Heating Oil $ 129,170 $ 27.80 per gallon Jet Fuel $ 60,160 $ 41.80 per gallon Required: 1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point

Sagot :

Anthougoidn

Answer:

Molo Oil Company

The financial advantage of further processing of each of the three products beyond the split-off point is:

= $182,430

(which is the additional profit gained from the further processing).

Explanation:

Joint processing costs = $385,000 per month

Product      Selling Price             Monthly Output     Sales Value

Gasoline     $ 27.00 per gallon   14,400 gallons     $388,800 ($27*14,100)

Heating Oil $ 21.00 per gallon  22,400 gallons       470,400 ($21*22,400)

Jet Fuel     $ 33.00 per gallon     5,600 gallons       184,800 ($33*5,600)

Total sales value = $1,044,000

Joint costs =               385,000

Profit =                     $659,000

Allocation of joint processing costs of $385,000

Gasoline =  $143,379 ($388,800/$1,044,000 * $385,000)

Heating Oil    173,471 ($470,400/$1,044,000 * $385,000)

Jet Fuel          68,150 ($184,800/$1,044,000 * $385,000)

Total cost $385,000

Total costs:

                                                Additional

                     Joint Cost      Monthly Cost     Total Costs

Gasoline         $143,379             $29,740        $173,119

Heating Oil        173,471               43,057        216,528

Jet Fuel              68,150              20,053          88,203

Total costs    $385,000           $92,850      $477,850

Product          Additional Processing        Selling Price

                        Costs (per quarter)

Gasoline               $ 89,220             $ 32.80 per gallon

Heating Oil          $ 129,170              $ 27.80 per gallon

Jet Fuel                $ 60,160               $ 41.80 per gallon

Product          Additional Processing    Selling Price

                        Costs (per month)

Gasoline                  $ 29,740             $ 32.80 per gallon

Heating Oil             $ 43,057              $ 27.80 per gallon

Jet Fuel                  $ 20,053              $ 41.80 per gallon

Determination of profit after further processing:

Product      Selling Price             Monthly Output  Sales Value

Gasoline     $ 32.80 per gallon   14,400 gallons  $462,480 ($32.80*14,100)

Heating Oil $ 27.80 per gallon  22,400 gallons   622,720 $27.80*22,400)

Jet Fuel      $ 41.80 per gallon     5,600 gallons   234,080 ($41.80*5,600)

Total sales revenue = $1,319,280

Total costs =                    477,850

Profit =                           $841,430

Financial advantage

Profit after further processing = $841,430

Profit with Joint processing =      659,000

Financial advantage =                 $182,430

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