The Macon Industries started the production of K1 (its main product) and S2 (its by-product) on January 2, 2020. During 2020, 7,500 units of K1 and 1,500 units of S2 were produced. In 2020, 6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit, respectively. Production was halted at the end of 2020 and the inventory was sold in 2021 at the normal selling prices. The joint production costs were $240,000 and are entirely avoidable. The separable costs to produce K1 were $2.60 per unit and to produce S2 were $0.45 per unit. Operating expenses were $60,000 in 2020 and $12,000 in 2021.
Required:
a. Prepare an income statement for 2020 and 2021 assuming the "other revenue" method of accounting for by-products is used.
b. Prepare an income statement for 2020 and 2021, assuming the "cost reduction" method of accounting for by-products is used and by-product costs are expensed in the period in which they are incurred.

Question

Quizplus · Accepted Answer

The Answer of The Macon Industries started the production of K1 (its main product) and S2 (its by-product) on January 2, 2020. During 2020, 7,500 units of K1 and 1,500 units of S2 were produced. In 2020, 6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit, respectively. Production was halted at the end of 2020 and the inventory was sold in 2021 at the normal selling prices. The joint production costs were $240,000 and are entirely avoidable. The separable costs to produce K1 were $2.60 per unit and to produce S2 were $0.45 per unit. Operating expenses were $60,000 in 2020 and $12,000 in 2021.
Required:
a. Prepare an income statement for 2020 and 2021 assuming the "other revenue" method of accounting for by-products is used.
b. Prepare an income statement for 2020 and 2021, assuming the "cost reduction" method of accounting for by-products is used and by-product costs are expensed in the period in which they are incurred.

The Macon Industries Started the Production of K1 (Its Main