Question

SaltySalty​,

Inc. is a producer of potato chips. A single production process at

SaltySalty​,

​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

20172017​,

the cost of operations is

$ 485 comma 000$485,000.

Production and sales data are as​ follows:

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​(Click the icon to view the production and sales​ data.)There were no beginning inventories on September​ 1,

20172017.

Read the requirements

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.Requirement 1. What is the gross margin for

SaltySalty​,

​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

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Data Table

	Production (in pounds)	Sales (in pounds)	Selling Price per pound
Potato Chips	48,000	39,360	$20
Byproduct	8,800	7,500	$10

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Requirements

1.	What is the gross margin for SaltySalty​, ​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, 20172017​, 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.

Answer 1

1.

	Production method	Sales method
Revenues
Main product (potato chips)	787,200.00	787,200.00
Byproduct (snack)		75,000.00
Total revenues	787,200.00	862,200.00
Cost of goods sold
Total manufacturing costs	485,000.00	485,000.00
Deduct value of byproduct production	88,000.00
Net manufacturing costs	397,000.00	485,000.00
Deduct main product inventory	71,460.00	94,575.00
Cost of goods sold	325,540.00	390,425.00
Gross margin	461,660.00	471,775.00

2.

	Production method	Sales method
Main Product	71,460.00	94,575.00
By Product	13,000.00