Question

Ebay manufactures from XY products from a process that yields a by-product called LAN. The by-product requires additional processing cost of $30,000. The by-product will require selling and administrative expenses totaling $20,000. It is Ebay's accounting policy to charge the joint costs to the main product only. Information concerning a batch produced during  the year ended December 31, 2019 follows:

WAN

Units produced: 100,000
Market Value at SOP: $50
Unit Sold 60,000

LAN

Units produced: 8,000
Market Value at SOP: $10
Unit Sold: 8,000

The joint cost incurred up to split off point are:

Direct materials $2,000,000
Direct Labor $ 800,000
Factory Overhead $200,000

The selling and administrative expenses of Ebay for the year ended December 31, 2019 is $1,000,000 exclusive of that for the by-product.

What is the gross profit for the year if the net revenue from by-product is presented as the additional sales revenue?

What is the gross profit for the year if the net revenue from by-product is presented as other income?

Answer 1

Answer:-

(1) Answer of "What is Gross profit for the year if net revenue from by product is presented as additional sales revenue":-

Cost calculation is following:-

Items	Amount
Joint cost incurred up to split off points:-
(1)Direct materials	2,000,000
(2)Direct labour	800,000
(3)Factory overhead	200,000
Total cost upto split off points for Joint product (2,000,000+800,000+200,000)	3,000,000
Cost Per units of main products(3,000,000/100,000)=30	30
By product Cost :-
Processing Cost-(For 8,000 units)	30,000

Gross profit if net revenue from by product is represent as additional revenue:-

Items	Amount	Items	Amount
Total cost of main product upto split point	3,000,000	Sale revenue of Main product(60,000*50)	3,000,000
Total cost of by product	30,000	Sale revenue of by products(8,000*10)	80,000
Gross profit	1,250,000	Closing stock of Main product(40,000*30@ cost per units)	1,200,000
Total	4,280,000	Total	4,280,000

So therefore the gross profit if net revenue from by product is represent as additional revenue is 1,250,000

(B) Ansewr of "Gross profit if net revenue from by product is presented as other income":-

Gross profit if net revenue from by product is presented as other income:-

Items	Amount	Items	Amount
Total cost of main product upto split point	3,000,000	Sale revenue of Main product(60,000*50)	3,000,000
Gross profit	1,200,000	Closing stock of Main product(40,000*30@ cost per units)	1,200,000
Total	4,200,000	Total	4,200,000

So therefore gross profit if net revenue from by product is presented as other income is 1,200,000

Note:-Selling and administrative expenses are not consider in above both calculation because we are calculating gross profit so therefore selling & admin cost will not consider as part of gross profit calculation.