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 the plastic into large sheets 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 29 table​ covers, 77 chair covers and 9 pounds of package filler from 100 pounds of bottles.

In June​, RRC had no beginning inventory. It purchased and processed 160,000 pounds of bottles at a cost of $960,000. RRC sold 28,000 table covers for $ 17 ​each, 76,000 chair covers for $ 9 ​each, and 8,000 pounds of package filler at $ 0.50 per pound.

Question:

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​?
2.	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 sales method. What is the ending inventory cost for each product and gross margin for RRC​?
3.	Discuss the difference between the two methods of accounting for​ byproducts, focusing on what conditions are necessary to use each method.

Answer 1

All amounts are in $ Purchased and produced Details production from 1 bottle Table covers Chair covers Package filler Total Number rof bottles 160000 Cost of purchase an 960000 Joint cost from 160000 bottles 29 46,40,000 77 1,23,20,000 9 pounds 14,40,000 pounds 1,84,00,000 960000 Sold Details Particulars Table covers Chair covers Package filler Units SPPU Sales 28000 76000 8000 112000 17 476000 9 684000 4000

Apportionment of Joint cost using production method Gross Cost per unit Particulars Units SPPU Sales Joint cost Percentage Table covers Chair covers Package filler 28000 76000 8000 17 476000 242087 233913 9 684000 642782.6 41217.39 4000 75130.43-71130.4 49% 696 1778% 8.65 8.46 9.39 0.5 Computation of value of closing inventory under production method Closing units(A+ Rate Opening Units Units Particularsu Value units(A) purchased(B) sold('C) B-C Table covers Chair covers Package filler 0 0 0 28000 4612000 1232000076000 12244000 8000 1432000 0.052,30,600 0.05 0.05 4640000 6,12,200 71,600 1440000

Apportionment of Joint cost using Sale value method Gross Cost per unit Units Particulars Table covers Chair covers Package filler SPPU Sales Joint cost Percentage 236000 49.57983193 6,51,42932571.4286 4.761904762 rofit 28000 76000 8000 17 476000 9 684000 4000 2,40,000 0.05 0.05 68,571-64571.429-1614.285710.048 0.5 Computation of value of closing inventory under Sale value method Units purchase Units Closing Opening Particularsunits(A) Rate Value sold(C) units(A+B-C) Table covers Chair covers Package filler 0 4640000 012320000 01 1440000 0 0 0 4640000 12320000 1440000 0.05 2,40,000.00 0.05 6,51,428.57 0.048 68,571.43

Apportionment of Joint cost under production method This is simple but worst method Applicable only when all the units are similar in nature Not applicable for products having selling prices Apportionment of Joint cost under Sale Value method This is simple but best method Apportion the joint cost based on sale volume Applicable only all the products are saleable at split off point Not applicablr if there is no sale value at split off point