Question

The Spokane Recycling Company (SRC) purchases old water and soda bottles and recycles them to produce plastic covers for outdoor furniture. The company processes the bottles in a special piece of equipment that first​ melts, then reforms the plastic into large sheets that are cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct. SRC can produce 27 table​ covers, 77 chair covers and 9 pounds of package filler from 100 pounds of bottles.

In June, SRC had no beginning inventory. It purchased and processed 110,000 pounds of bottles at a cost of $ 880,000. SRC sold 22,000 table covers for $11 each, 77,000 chair covers for $12 each, and 4,000 pounds of package filler at $0.90 per pound.

Requirement 1. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the production method. What is the ending inventory cost for each product and gross margin for SRC?

​First, allocate the joint costs. ​(Round the weighting values to two decimal​ places.)

	Table	Chair
	Covers	Covers	Total
Sales values at splitoff
Weighting
Joint costs allocated

Now complete the statement below for SRC.

​(Do not round intermediary calculations. Only round the amount you input in the cell to the nearest​ dollar.)

	Table	Chair
	Covers	Covers	Total
Revenues
Cost of goods sold:
Joint costs allocated
Less: Ending inventory
Cost of goods sold
Gross margin

Requirement 2. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the sales method. What is the ending inventory cost for each product and gross margin for SRC?

​First, allocate the joint costs. ​(Round the weighting values to two decimal​ places.)

	Table	Chair
	Covers	Covers	Total
Sales values at splitoff
Weighting
Joint costs allocated

Now complete the statement below for SRC

​(If a box is not used in the​ table, leave the box​ empty; do not enter a zero. Do not round intermediary calculations. Only round the amount you input in the cell to the nearest​ dollar.)

	Table	Chair	Plastic
	Covers	Covers	Filler (lbs)	Total
Revenues
Cost of goods sold:
Joint costs allocated
Less: Ending inventory
Cost of goods sold
Gross margin

Answer 1

Requirement 1:
Allocation of Joint Costs
The joint cost is allocated on the basis of sales value
Cost incurred are allocated basis the percentage of Revenue earned
Calculation is as follows:
	Table	Chair
	Covers	Covers	Total
Sales values at splitoff	242000	924000	1166000
Weighting	0.20755	0.79245
Joint costs allocated	182642	697358	880000
Let us understand, how can we arrive at the usage of stock towards the covers
>>> for 100 pounds of Bottles, 9 pounds of bottle is allocated for fillers which is a by product,
Now, Remaining pounds of bottle is 91 pounds, which is utilised for covers
We shall apply this for 110000 pounds of bottle
Bottles	Usage for covers
100	91
110000	100100
Now let us understand how many covers can be manufactured using 91 pounds of Cover
altogether, 104 (27+77) covers can be manufactured from 91 Pounds of Covers
Therefore, for Every 100100 Pounds of Bottle, 114400 Covers can be manufactured (100100*104/91) or (100100*8/7)
Total covers that can be manufactured =			114400
which can be allocate in (27:77) Ratio
Table covers that can be manufactured			29700
Chair covers that can be manufactured			84700
Total covers that can be manufactured =			114400
For Ascertianing the gross margin and cost of goods sold, we have to reduce the unsold inventory from total gods
In the given case, 7700 (29700-22000) Table covers & 7700 (84700-77000) Chair covers are unsold
So Ending inventory for Table Covers= 47532 (7700*182642/29700)
So Ending inventory for Chair Covers= 63396 (7700*697358/84700)
The statement below for SRC.
	Table	Chair
	Covers	Covers	Total
Revenues	242000	924000	1166000
Cost of goods sold:
Joint costs allocated	182642	697358	880000
Less: Ending inventory	47352	63396
Cost of goods sold	135290	633962	769252
Gross margin	106710	290038	396748