Problem 1: Farmer Company processes 40,000 pounds of direct materials to produce two products, Apples and Apple Sauce. Apple Sauce, a byproduct, sells for $9 per pound, and Apples, the main product, sells for $50 per pound. The following information is for July:
|
|
Production
|
Sales
|
Beginning Inventory
|
Ending inventory
|
|
Apple sauce
|
8,700
|
8,000
|
0
|
700
|
|
Apples
|
25,500
|
24,900
|
300
|
900
|
1. Construct a July income statement assuming that Farmer Company recognizes the byproduct revenue at the time of sale. The company uses FIFO for the inventory flow assumption.
2. Construct the journal entry to record the byproduct sales.
Problem 2: The Dairy Company produces three products from a joint processes using whole milk: butter, cheese, and cream. The joint costs amount to $24,000 per batch of output. Each batch totals 50,000 liters: 25% butter, 25% cheese, 50% cream. All products are processed further without gain or loss in volume. Separable costs are butter, $0.50 per liter; cheese, $2.00 per liter; cream, $0.25 per liter. The selling prices per liter are respectively: $3.50, $6.00, $4.00.
1. How much joint cost per batch should be allocated to cream, assuming that joint costs are allocated on a physical measure basis? If joint costs are assigned on a net realizable value basis, how much joint cost should be allocated to cheese?
2. An organic grocer has offered to buy all of the cheese produced at $5.50 per liter. Traditionally 90% of the cheese production is sold. How much better or worse off financially is the company from accepting this offer?