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Rhone Corporation produces a product called Sharone, which gives rise to a by-product called Erone. The only costs associated with Erone are additional processing costs of $2 for each unit. Rhone accounts for Erone's sales first by deducting its separable costs from its sales and then by deducting this net amount from the cost of goods sold of Sharone. This year, 4,800 units of Erone were produced. They were all sold for $10 each. Company operating expenses were $120,000 for the year. Sales revenue and cost of goods sold for Sharone were $800,000 and $400,000, respectively, for the year. (CPA adapteD
-Under the existing method of accounting for Erone, what is Rhone's gross margin?
A) $400,000
B) $218,400
C) $361,600
D) $438,400

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Quizplus · Accepted Answer

The gross margin calculation under the existing method of accounting for Erone involves first calculating the net amount from Erone's sales after deducting its separable costs, and then deducting this net amount from the cost of goods sold of Sharone. Erone's sales revenue is 4,800 units * $10 = $48,000. The separable costs are 4,800 units * $2 = $9,600. Thus, the net amount from Erone's sales is $48,000 - $9,600 = $38,400. The adjusted cost of goods sold for Sharone, after accounting for Erone, is $400,000 - $38,400 = $361,600. Therefore, the gross margin is the sales revenue of Sharone minus this adjusted cost of goods sold: $800,000 - $361,600 = $438,400.

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