Reference no: EM131730260

Alternative joint-cost-allocation methods, further-process decision. The Wood Spirits Companyproduces two products-turpentine and methanol (wood alcohol)-by a joint process. Joint costs amountto $120,000 per batch of output. Each batch totals 10,000 gallons: 25% methanol and 75% turpentine. Bothproducts are processed further without gain or loss in volume. Separable processing costs are methanol, $3per gallon, and turpentine, $2 per gallon. Methanol sells for $21 per gallon. Turpentine sells for $14 per gallon.

1. How much of the joint costs per batch will be allocated to turpentine and to methanol, assuming thatjoint costs are allocated based on the number of gallons at splitoff point?

2. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to turpentineand to methanol?

3. Prepare product-line income statements per batch for requirements 1 and 2. Assume no beginning orending inventories.

4. The company has discovered an additional process by which the methanol (wood alcohol) can bemade into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be $60 a gallon.Additional processing would increase separable costs $9 per gallon (in addition to the $3 per gallonseparable cost required to yield methanol). The company would have to pay excise taxes of 20% onthe selling price of the beverage. Assuming no other changes in cost, what is the joint cost applicableto the wood alcohol (using the NRV method)? Should the company produce the alcoholic beverage?Show your computations.