Quality?, Inc. is a producer of potato chips. A single production process at Qua
ID: 2512387 • Letter: Q
Question
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?Explanation / Answer
solution:
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
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