Question: Accounting for a main product and a byproduct. (Cheatham and Green, adapted) Crispy, Inc., is a producer of potato chips. A single production process at Crispy, 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 $520,000. Production and sales data are as follows:
Production (in pounds) Sales (in pounds) Selling Price per pound
Potato Chips 46,000 34,960 $26
Byproduct 8,200 5,000 $ 5
There were no beginning inventories on September 1, 2017.
1. What is the gross margin for Crispy, Inc., under the production method and the sales method of byproduct accounting?
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?
3. Prepare the journal entries to record the byproduct activities under (a) the production method and (b) the sales method. Briefly discuss the effects on the financial statements.