Please include all steps and figures used to reach solutions.

Renkas Oil & Gas, a large energy conglomerate, jointly processes purchased hydrocarbons to generate three nonsalable 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).

A federal law that has recently been passed taxes crude oil at 30% of operating income. No new tax is to be paid on natural gas liquid or natural gas.

Overview of the process and results. An overview of the process and results for August

2017 are shown here (Note: The numbers are small to keep the focus on key concepts.)

$2,000			ICR8	Processing$130		Crude Oil150 barrels @$20 per barrel
Hydrocarbons	Processing		ING4	Processing$125		NGL125 barrels @$19 per barrel
			XGE3	Processing$235		Natural Gas975 eqvt. barrels @$1.40 per eqvt. barrel

Requirements

1.	Allocate the August2017 joint cost among the three products using the following:
	a. Physical-measure method
	b.NRV method.
2.	Show the operating income for each product using the methods in requirement 1.
3.	Discuss the pros and cons of the two methods to Renkas Oil & Gas for making decisions about product emphasis (pricing, sell-or-process-further decisions, and so on).

Requirement 1. Allocate the August 2017 joint cost among the three products using the (a) Physical-measure method and (b) NRV method. First, allocate the August 2017

joint cost using the physical-measure method. (Round the weights to five decimal places and joint costs to the nearest cent.)

	Crude Oil	NGL	Gas	Total
Physical measure of total production
Weighting
Joint costs allocated