Hfx Oil & Gas, a large energy conglomerate, jointly processes purchased hydrocarbons to generate three nonsaleable 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). An overview of the process and results for August 2018 follows: Note: numbers are small A new law has recently been passed that taxes crude oil at 30% of operating income. No new tax is to be paid on natural gas liquid or natural gas. Starting August 2018 Hfx Oil & Gas must report a separate product-line income statement for crude oil. One challenge facing Hfx Oil & Gas is how to allocate the joint cost of producing the three separate saleable outputs. Assume no beginning or ending inventory.

Crude Oil NGL Gas

Joint Costs 1600

Separable Costs 210 90 235

175 barrels @ $22 75 barrels @ $13 550eq barrels @ $1.50

A) Allocate the August 2018 joint Cost among the three products using physical measures method

B) Prepare operating income statement for each product required in 1

C) Allocate the August 2018 joint Cost among the three products using NRV method

D) Prepare operating income statement for each product required in 3

E) Which method, if any, would you use for product emphasis? Briefly explain

Answer rating: 100% (QA)

A Physical Measure Method Crude Oil NGL Gas Total 1 Physical measure of total production 175 75 550 ... View the full answer