Georgette Rheingold owns and operates a fruit smoothie manufacturing operation, Nutri-smoothie. She processes fruit and adds it to yogurt and produces fruit smoothies, the main product. She sells the rinds and waste to a recycling organization that turns it into compost. Neither product requires processing after the split-off point. Information for last month’s operations follows:

Joint costs of smoothie production ....... $12,000

Smoothie production (in pint bottles) ...... 20,000

Price per bottle .............. $2

Sales last month (bottles) .......... 18,000

Compost production ............10,000 lbs

Compost sales ............... 9,000 lbs

Compost price per pound ........... $0.25

REQUIRED

A. What is Nutri-smoothie’s gross margin for last month if the by-product value is recognized at the time of production?

B. What is Nutri-smoothie’s gross margin for last month if the by-product value is recognized at the time of sale?

C. Calculate the inventory value for both smoothies and compost on the balance sheet under the methods used in parts (A) and (B).