Quality?, Inc. is a producer of potato chips. A single production process at Quality?, ?Inc., yields potato chips as the main product and a byproduct that can also be sold as a snack. Both products are fully processed by the splitoff? point, and there are no separable costs. For September 2014?, the cost of operations is $ 525 comma 000. Production and sales data are as? follows:
1.
|
What is the gross margin for
QualityQuality?,
?Inc., under the
production method and the sales method of byproduct?accounting? |
2.
|
What are the inventory costs reported in the
balance sheet on September? 30,
20142014?,
for the main product and byproduct under the
two methods of byproduct accounting in requirement?
1? |
solution:
PARTICULARS | PRODUCTION METHOD | notes | SALES METHOD | notes |
SALES REVENUE : | ||||
MAIN PRODUCT | 851760 | 32760*26 | 851760 | 32760*26 |
BY PRODUCT | 0 | 37500 | 7500*5 | |
TOTAL REVENUE | 851760 | 889260 | 851760+37500 | |
COST OF GOODS SOLD | ||||
OPERATION COST | 525000 | 525000 | ||
LESS: NET REALISABLE VALUE OF BY PRODUCT | 42000 | 8400*5 | - | - |
NET OPERATION COSTS | 483000 | 525000 | ||
LESS : MAIN PRODUCT INVENTORY COST | 106260 | [(42000-32760)/42000] * 483000 | 115500 | [(42000-32760)/42000] * 525000 |
NET COST OF GOODS SOLD | 376740 | 409500 |
GROSS MARGIN = TOTAL SALES REVENUE-NET COST OF GOODS SOLD
1) GROSS MARGIN UNDER PRODUCTION METHOD = 851760-376740 =475020
GROSS MARGIN UNDER SALES METHOD = 851760-409500=442260
2) INVENTORY COST UNDER PRODUCTION METHOD = MAIN INVENTORY COST + BYPRODUCT INVENTORY COST AT UNREALISABLE SALE VALUE
=106260+(8400-7500)*5 = 106260+4500=110760
INVENTORY COST UNDER SALES METHOD = 115500
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