alternative joint cost allocation methods further process 267524

Alternative joint cost allocation methods, further process decision. The Wood Spirits Company produces two products—turpentine and methanol (wood alcohol)—by a joint process. Joint costs amount to $120,000 per batch of output. Each batch totals 10,000 gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol $3 per gallon; turpentine, $2 per gallon. Methanol sells for $21 per gallon. Turpentine sells for $14 per gallon.

1. How much of the joint costs per batch will be allocated to turpentine and to methanol, assuming joint costs are allocated based on the number of gallons at splitoff point?

2. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to turpentine and to methanol?

3. Prepare product line income statements per batch for requirements 1 and 2. Assume no beginning or inventories.

4. The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant tasting alcoholic beverage. The selling price of this beverage would be $60 a gallon. Additional processing would increase separable costs $9 per gallon (in addition to the $3 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage. Assuming no other changes in cost what is the joint cost applicable to the wood alcohol (using the NRV method)? Should the company produce the alcoholic beverage? Show your computations.