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Mega Oil Company transports crude oil to its refinery where

Price: $2.50


P6-11 Mega Oil Company transports crude oil to its refinery where it is processed into main products gasoline, kerosene, and diesel fuel, and by product base oil. The base oil is sold at the split-off for $500,000 of annual revenue, and the joint processing cost to the get the crude oil to split-off are $5,000,000. Additional information includes:

Product Barrels produced Cost of Split-off Selling Price Per Barrel

Gasoline 500,000 $2,000,000 $25
Kerosene 100,000 500,000 30
Diesel fuel 250,000 1,000,0000 20

Determine the allocation of joint costs, using the relative sales value method, (Hint: Reduce the amount of the joint costs to be allocated by the amount of the by-product Revenue)

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