Bill Dundee is the owner and operator of Western Bottling, a bulk soft-drink producer. A single production process yields two bulk soft drinks, Rainbow Dew (the main product) and Resi-Dew (the by-product). Both products are fully processed at the split-off point, and there are no separable costs.

Summary data for September 2021 are as follows:

Cost of soft-drink operations.$144,000

Production and sales data:

	Production in Litres	Sales in Litres	Selling price per litre
Main product (Rainbow Dew)	10,000	8,000	$24.00
By-product (Resi-Dew)	2,000	1,400	2.40

There was no beginning inventory on September 1, 2021.

a) Assuming Western Bottling accounts for the by-product using the production method, what is their total gross margin for September? Show all details of calculations.

b) Assuming Western Bottling accounts for the by-product using the sales method, what is their total gross margin for September? Show all details of calculations.

c) When the sales method is used, explain how by-product inventory is recognized in the financial statements. What is the reasoning for this? (