There were no beginning inventories on September 1, 2017. Read the requirements. Quality, Inc. is a producer of potato chips. A single production process at Quality, Inc., yields potato chips as the main product, as well as a byproduct that can be sold as a snack. Both products are fully processed by the splitoff point, and there are no separable costs. For September 2017, the cost of operations is $500,000. Production and sales data are as follows: (Click the icon to view the production and sales data.) Requirement 1. What is the gross margin for Quality, Inc., under the production method and the sales method of byproduct accounting? (Enter a "0" for any cells with a zero balance. For the main product inventory: Calculate the proportion of inventory first, then complete your calculation.) Production Sales method method Revenues Main product (potato chips) Byproduct (snack) Total revenues Cost of goods sold Total manufacturing costs Deduct value of byproduct production Net manufacturing costs Deduct main product inventory Cost of goods sold Gross margin Requirement 2. What are the inventory costs reported in the balance sheet on September 30, 2017, for the main product and byproduct under the two methods of byproduct accounting in requirement 1? (Enter a "0" for any cells with a zero balance.) Production Sales method method Main product (potato chips) Byproduct (snack) Requirement 3a. Prepare the journal entries to record the byproduct activities under the production method. (Record debits first, then credits. Exclude explanations from journal entries. Select "No journal entry needed" on the first line of the journal entry table and leave the other cells blank if a journal entry is not required.) Begin by preparing the entry to record the direct materials purchased and used in production during September. Accounts Debit Credit Record the entry for the cost of goods completed (for the byproduct) during September. Accounts Debit Credit Record the entry for the cost of goods completed (for the main product) during September. Accounts Debit Credit Record the entry for sales of the byproduct during September. Accounts Debit Credit Record the entry for sales of the main product during September. (Do not record the cost, we will do this in the next step.) Accounts Debit Credit Record the entry for the cost of the main product sold during September. Accounts Debit Credit Requirement 3b. Prepare the journal entry to record the byproduct activities under the sales method. (Record debits first, then credits. Exclude explanations from journal entries. Select "No journal entry needed" on the first line of the journal entry table and leave the other cells blank if a journal entry is not required.) Begin by preparing the entry to record the direct materials purchased and used in production during September. Accounts Debit Credit Record the entry for the cost of goods completed (for the byproduct) during September. Accounts Debit Credit Record the entry for the cost of goods completed (for the main product) during September. Accounts Debit Credit Record the entry for sales of the byproduct during September. Accounts Debit Credit Record the entry for sales of the main product during September. (Do not record the cost, we will do this in the next step.) Accounts Debit Credit Record the entry for the cost of the main product sold during September. Accounts Debit Credit Briefly discuss the effects on the financial statements. Under the is offset against the cost of the V method revenue is not recognized for the sale of the byproduct. Instead, the NRV of the This method is y consistent with the matching principle and is therefore the preferred method. Under the v method, the NRV is recognized only upon sale. Data Table Sales (in pounds) Production (in pounds) 54,000 Potato Chips 44,280 Selling Price per Pound $ 18 $ 5 Byproduct 8,100 6,500
