Question

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

$480,000.

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,

2017.

Read the requirements

.Requirement 1. What is the gross margin for Quality ​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	50,000	40,000	$28
Byproduct	8,700	8,000	$5

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Requirements

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, 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