Question
By-product costing. In the manufacture of its main product, the Hominy Company produces a by-product. Joint production costs incurred to the point of separation totaled
By-product costing. In the manufacture of its main product, the Hominy Company produces a by-product. Joint production costs incurred to the point of separation totaled $150,000. After separation, costs totaling $100,000 were incurred to complete the main product, and $2,000 was incurred to complete the by-product. The main product had a final market value of $350,000, and the by-product had a final market value of $10,000. There is no ending inventory.
Required:
(1) Assume that the net revenue method is used to account for the by-product as other income and that the by-products marketing and administrative expenses are zero. How much other income should be reported on the income statement?
(2) Assume that management wants to allocate $1,000 of marketing and administrative expenses to the by-product and still have a profit of 15% of the sales price. Using the market value (reversal cost) method, how much of the joint cost should be allocated to the by-product?
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