Reference no: EM132665975

Company A produces two products-methanol (wood alcohol) and turpentine in a joint process. Joint costs amount to $124,200 per batch of output. Each batch totals 13,500 gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, $11 per gallon; turpentine, $3 per gallon. Methanol sells for $22 per gallon. Turpentine sells for $16 per gallon.

• The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be $42 a gallon. Additional processing would increase separable costs by $12 per gallon (in addition to the $11 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage.

Requirement:

Problem 1: Under the following assumptions, calculate the joint cost allocated (in total $) of the turpentine product.

1. The firm chooses its product mix to maximizes operating profit.
2. The firm uses the constant gross margin method to allocate joint costs. 
3. There are no beginning or ending inventories.