ACE Refining Co. manufactures two joint products (gasoline and diesel fuel) from an initial joint process (using crude oil). The company is trying to decide whether to take 40% of the gasoline and process it further to make it into lighter fluid (for charcoal grills). Relevant information for ACE is shown below.

	Lighter Fluid		Diesel	Total
Final Sales Value of Total Production:
30,000 gallons x $3 for Lighter Fluid	$ 90,000	50,000 gallons x $5 for Diesel	$250,000	$340,000
Minus: separable costs (to process further)
30,000 gallons x $2 for Lighter Fluid	$ 60,000	50,000 gallons x $4 for Diesel	$200,000	$260,000
Net Realizable Value at Split-off	$ 30,000	Net Realizable Value at Split-off	$ 50,000	$ 80,000
Weighting, based on NRV	37.5%		62.5%	100%
Joint Costs Allocated	$37,500		$62,500	$100,000

IF the company did NOT process the gasoline further to make the lighter fluid, the gasoline would sell for $2.60 per gallon.

REQUIRED: 

Using only incremental analysis (NOT on a total basis), show your calculations for deciding whether to process the gasoline further into lighter fluid and indicate your recommendation as to whether to sell the gasoline or process it further into lighter fluid.

(1) Calculations to justify your answer.

(2) Recommendation: Should they process the gasoline further and sell it as lighter fluid (based only on quantitative analysis)? Yes or No

Answer rating: 100% (QA)

AnswerPart1 AnswerPart2 ACE Refining Co Incremental Analysis Recommendation Sell Gasoline ... View the full answer