Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additionalprocessing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon.Read the requirements......Requirement 1. Fill in the diagram for Preston's alternatives.Revenues fromselling as isJoint costsof producing60,000gallons ofpetroleumdistillateCost ofRevenues fromprocessingprocessingfurtherfurtherRequirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision?Theis a sunk cost thatdiffer between the alternatives of selling as is or processing further. Consequently, this sunk cost isto the sell-or-process-further decision.Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference in total net revenue, use a parentheses or a minus sign ifprocessing further will decrease total net revenue.)ProcessSell As IsFurtherDifference gallons ofpetroleumdistillateCost ofRevenues fromprocessingprocessingfurtherfurtherRequirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision?Theis a sunk cost thatdiffer between the alternatives of selling as is or processing further. Consequently, this sunk cost isto the sell-or-process-further decision.Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference in total net revenue, use a parentheses or a minus sign ifprocessing further will decrease total net revenue.)ProcessSell As IsFurtherDifferenceExpected revenue from selling 60,000 gallons of petroleum distillateExpected revenue from selling 55,000 gallons of cleaner fluidAdditional costs of processingTotal net revenueDecision:

Soltuion 1: Joint Cost of Producing 60000 gallons of petroleum distillate 200000 Revenue from…

Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon. Read the requirements.

Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon. Read the requirements.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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