The

Everett

Recycling Company

(ERC)

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.

ERC

can produce

30

table covers,

72

chair covers and

10

pounds of package filler from

100

pounds of bottles.

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.In

June,

ERC

had no beginning inventory. It purchased and processed

130,000

pounds of bottles at a cost of

$520,000.

ERC

sold

22,000

table covers for

$8

each,

82,000

chair covers for

$3

each, and

8,000

pounds of package filler at

$0.30

per pound.

Requirement 1. Assume that

ERC

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

ERC?

First, allocate the joint costs. (Round the weighting values to two decimal places.)

	Table	Chair
	Covers	Covers	Total
Sales values at splitoff
Weighting
Joint costs allocated

2.	Assume that ERC 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 ERC?
3.	Discuss the difference between the two methods of accounting for byproducts, focusing on what conditions are necessary to use each method.