Question

Enjoy Inc. is a producer of potato chips. A single production process at Enjoy​ ​Inc., yields potato chips as the main​ product, as well as a byproduct that can be sold as a snack. Both products are fully processed by the splitoff​ point, and there are no separable costs. For September 2017​ the cost of operations is $485,000.

Production and sales data are as​ follows:

Production (in pounds)			Sales (in pounds)			Selling Price per Pound
Potato Chips		54,000			41,040			$16
Byproduct		8,000			6,500			$10

There were no beginning inventories on September​ 1,2017.

.	What is the gross margin for Enjoy ​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, 2017 for the main product and byproduct under the two methods of byproduct accounting in requirement​ 1?
3.	Prepare the journal entries to record the byproduct activities under​ (a) the production method and​ (b) the sales method. Briefly discuss the effects on the financial statements.

Requirement 1. What is the gross margin for

EnjoyEnjoy​,

​Inc., under the production method and the sales method of byproduct​ accounting? ​(Enter a​ "0" for any cells with a zero balance. For the main product​ inventory: Calculate the proportion of inventory​ first, then complete your​ calculation.)

	Production
	method
Revenues
Main product (potato chips)
Byproduct (snack)
Total revenues
Cost of goods sold
Total manufacturing costs
Deduct value of byproduct production
Net manufacturing costs
Deduct main product inventory
Cost of goods sold
Gross margin

Answer 1

	Production Method
Revenues
Main product (potato chips)         (41040 * 16)	656640
Byproduct (snack)	-
Total revenues	656640
Cost of goods sold
Total manufacturing costs	485000
Deduct value of byproduct production   (8000 * 10)	(80000)
Net manufacturing costs	405000
Deduct main product inventory	(97200)*
Cost of goods sold	307800
Gross margin	348840

* Ending Inventory = 54000 – 41040 = 12960

(12960/54000) * 405000 = 97200

	Sales Method
Revenues
Main product (potato chips)         (41040 * 16)	656640
Byproduct (snack)   (6500 * 10)	65000
Total revenues	721640
Cost of goods sold
Total manufacturing costs	485000
Deduct value of byproduct production   (8000 * 10)
Net manufacturing costs	485000
Deduct main product inventory	(116400)*
Cost of goods sold	368600
Gross margin	288040

*(12960/54000) * 485000 = 116400