Question

In: Accounting

Enjoy Inc. is a producer of potato chips. A single production process at Enjoy​ ​Inc., yields...

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

Solutions

Expert Solution

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


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