The BIG JOE CO., using a process cost system, manufactures work boots, their main product, and leather belts, their by-product. They both emerge at the split-off point from Department 1.

The work boots require no additional processing. The belts are transferred to Department 2 where additional work is done to finish them. The workers produced the boots and belts in a ratio of 5:1, Their sales of the main product to the by-product had this same ratio; 25,000 pairs of boots were produced and 4,000 belts were produced and sold during the period. The boots were sold for

$100.00 a pair, while the belts sold for $10.00 a piece. Total production costs were $1,200,000 for Department | and $7,500 for Department 2. Total selling and administrative expenses for the

-@ main product and by-product were 10% and 20%, respectively, of their sales revenues. The BIG JOE CO. expects a 30% gross profit from their by-products. Ignore income taxes. nki8

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Required: a Prepare an income statement using the 1 Net realizable value method 2 Reversal cost method b Write journal entries for Part a relating to the by-product assuming the following additional detailed production information: Department 2 Direct materials. $3,000 Direct labor. 2,500 Factory overhead 2,000 Total... $7,500