Edin-Chem Ltd. is a small company that acquires high-grade crude oil from low volume producing wells owned by individuals. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Edin-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning finished goods or work-in-process inventories on January 1. The production costs and output of Edin-Chem for January are as follows: 1. Crude oil acquired and placed into production £5,000,000 Direct labour and related costs 2,000,000 Manufacturing overhead 3,000,000 2. Production and sales: Two Oil: 300,000 barrels produced; Six Oil: Required: 80,000 barrels sold at £20 each 240,000 barrels produced; 120,000 barrels sold at £30 each Distillates: 120,000 barrels produced and sold at £15 per barrel Calculate the amount of joint production cost that Edin-Chem would allocate to each of the three joint products by using the physical measures method. (Perform the ratio calculation to four decimal places.) Calculate the amount of joint production cost that Edin-Chem would allocate to each of the three joint products by using the relative sales value method. (CMA adapted)
Edin-Chem Ltd. is a small company that acquires high-grade crude oil from low volume producing wells owned by individuals. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Edin-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning finished goods or work-in-process inventories on January 1. The production costs and output of Edin-Chem for January are as follows: 1. Crude oil acquired and placed into production £5,000,000 Direct labour and related costs 2,000,000 Manufacturing overhead 3,000,000 2. Production and sales: Two Oil: 300,000 barrels produced; Six Oil: Required: 80,000 barrels sold at £20 each 240,000 barrels produced; 120,000 barrels sold at £30 each Distillates: 120,000 barrels produced and sold at £15 per barrel Calculate the amount of joint production cost that Edin-Chem would allocate to each of the three joint products by using the physical measures method. (Perform the ratio calculation to four decimal places.) Calculate the amount of joint production cost that Edin-Chem would allocate to each of the three joint products by using the relative sales value method. (CMA adapted)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Edin-Chem Ltd. is a small company that acquires high-grade crude oil from
low volume producing wells owned by individuals. The crude oil is processed
in a single refinery into Two Oil, Six Oil, and impure distillates. Edin-Chem
does not have the technology or capacity to process these products further and
sells most of its putput each month to major refineries. There were no
beginning finished goods or work-in-process inventories on January 1. The
production costs and output of Edin-Chem for January are as follows:
1.
Crude oil acquired and placed into production £5,000,000
Direct labour and related costs
2,000,000
Manufacturing overhead
3,000,000
2.
Production and sales:
Two Oil:
Six Oil:
Required:
300,000 barrels produced;
80,000 barrels sold at £20 each
240,000 barrels produced;
120,000 barrels sold at £30 each
Distillates: 120,000 barrels produced and
sold at £15 per barrel
Calculate the amount of joint production cost that Edin-Chem would
allocate to each of the three joint products by using the physical measures
method. (Perform the ratio calculation to four decimal places.)
Calculate the amount of joint production cost that Edin-Chem would
allocate to each of the three joint products by using the relative sales value
method. (CMA adapted)
6
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