Reference no: EM132961803

McKonn Industrial, Inc. purchases old plastic bottles and recycles them to produce patio furnishing items. The company processes the bottles in a special piece of equipment that first melts, then reforms the plastic and is cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct.

McKonn can produce 30 floor mats, 70 chair covers, and 5 pounds of package filler from 100 pounds of bottles.

In June, McKonn had no beginning inventory. It purchased and processed 140,000 pounds of bottles at a cost of $600,000. McKonn sold 32,000 floor mats for $12 each, 87,000 chair covers for $8 each, and 6,000 pounds of package filler at $1 per pound.

Requirements:

Problem 1: Assume that McKonn allocates the joint costs to floor mats 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 McKonn?

Problem 2: Assume that McKonn allocates the joint costs to floor mats 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 McKonn? Explain the difference between the two methods of accounting for byproducts.