Ask Question
30 July, 18:00

Valiant Petro products refines crude oil to produce gasoline and kerosene. Joint costs incurred during the month of May were $1,800,000. Gasoline requires further processing to be marketable and hence a further processing cost of $100,000 was incurred. Kerosene also requires further processing to be marketable and hence a further processing cost of $200,000 was incurred. Gasoline was sold at $4 per gallon and kerosene at $3.50 per gallon. During the month of May, 500,000 gallons of gasoline and 600,000 gallons of kerosene were processed. What is the production cost per gallon of gasoline for the month of May using the NRV method? Assume there was no beginning inventory.

+1
Answers (1)
  1. 30 July, 18:20
    0
    Answer: $1,400,000

    Explanation:

    Joint cost = $1,800,000

    Further processing cost (Gasoline) = $100,000

    Further processing cost (kerosene) = $200,000

    Price of gasoline = $4 per gallon

    Price of kerosene = $3.50 per gallon

    Processed gasoline in May = 500,000

    Processed kerosene in May = 600,000

    Allocation of joint cost (Gasoline) = (Total cost * share ratio)

    Share ratio = further processing cost of component : total further processing cost

    [$1,800,000 * (100000 : 300000) ]

    ($1,800,000 * 0.33333333) = 599,999.999

    Net realizable value = (Final sales price - processing cost)

    [ $ (500,000*4) - $600,000]

    $2,000,000 - $600,000

    $1,400,000

    Production cost of gasoline is $1,400,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Valiant Petro products refines crude oil to produce gasoline and kerosene. Joint costs incurred during the month of May were $1,800,000. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers