Question

The Redmond Recycling Company (RRC) purchases old water and soda bottles and recycles them to produce plastic covers for outdoor furniture. The company processes the bottles in a special piece of equipment that first melts, then reforms plastic into large sheels that are cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct. RRC can produce 24 table covers, 70 chair covers and 8 pounds of package filler from 100 pounds of bottles. (Click the icon to view additional information.) Read the requirements. Requirement 1. Assume that RRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the production method. What is the ending inventory cost for each product and gross margin for RRC? First, allocate the joint costs. (Round the weighting values to two decimal places.) More Info Table Chair - Covers Covers Total Sales values at splitoff Weighting Joint costs allocated In June, RRC had no beginning inventory. It purchased and processed 110,000 pounds of bottles at a cost of $440,000. RRC sold 22,000 table covers for $16 each, 76,000 chair covers for $3 each, and 3,000 pounds of package filler at $0.90 per pound Now complete the statement below for RRC. (Do not round intermediary calculations. Only round the Print Done Table Chair Covers Covers Total Revenues Cost of goods sold: Joint costs allocated Enter any number in the edit fields and then continue to the next question. ? Save for Later

Answer 1

Redmond Recycling Company Requirement 1 1. Sales value at splitoff method: Byproduct recognized at time of production method Table Chair Package Covers Covers Filler (lbs) Products manufactured 26400 77000 8800 Products sold 22000 76000 3000 Ending inventory 4400 1000 5800 0.24 table covers per 1 lb of bottles x 110,000 lbs of bottles = 26,400 table covers 0.70 chair covers per 1 lb of bottles x 110,000 lbs of bottles = 77,000 chair covers 0.08 lbs of package filler per 1 lb of bottles x 110,000 lbs of bottles = 8,800 lbs of package fille Joint cost to be charged to joint products = Joint Cost - NRV of Byproduct = $440,000 - (8,800 lbs x 1 per lb) = $440,000 - $8,800 = $431,200 Table Covers 422400 Chair Covers 231000 Total 653400 Sales value of covers at splitoff, 26,400 x $16; 77,000 $3 Weighting, $422,400; $231,000 $653,400 Joint costs allocated, 65%; 35% * $431,200 65% 35% 152444 278756 431200 Table Covers 352000 Chair Covers 228000 Total 580000 278756 152444 Revenues, 22,000 x $16; 76,000 × $3 Cost of goods sold: Joint costs allocated, 65%; 35% $431,200 Less: Ending inventory Cost of goods sold Gross margin 431200 -48439 -46459 -1980 150465 77535 232296 119704 382761 197239 4,400 ($278,756/26,400) = $33,000 10,000 % ($396,000/90,000) = $44,000 The ending inventory of package filler is reported at its estimated market value of $5,220 (5,800 lbs x $0.90).

Requirement 2 Sales value at splitoff method: Byproduct recognized at time of sale method Joint cost to be charged to joint products = Joint Cost = $440,000 Chair Table Covers 422400 Covers Total 653400 231000 Sales value of covers at splitoff, 26,400 x $16; 77,000 $3 Weighting, $422,400; $231,000 $653,400 Joint costs allocated, 65%; 35% x $440,000 35% 65% 284444 155556 440000 Table Covers 352000 Chair Package Covers Filler (lbs) Total 228000 2700 582700 Revenues, 22,000 $16; 76,000 $3 ;$3000 x 0.90 Cost of goods sold: Joint costs allocated, 65%; 35% < $440,000 Less: Ending inventory Cost of goods sold Gross margin 286000 -47667 440000 -49667 154000 -2000 152000 76000 238333 390333 192367 113667 2700 4,400 x ($286,000/26,400) = $32,500 1,000 X ($154,000/77,000) = $3,000 Requirement 3 3. The production method of accounting for the byproduct is only appropriate if RRC is positive they can sell the byproduct at the expected selling price. Moreover, RRC should view the byproduct's contribution to the firm as material enough to find it worthwhile to record and track any inventory that may arise. The sales method is appropriate if either the disposition of the byproduct is unsure or the selling price is unknown, or if the amounts involved are so negligible as to make it economically infeasible for RRC to keep track of byproduct inventories.