What are the two methods to account for by-products? Which is the more appropriate method to use and why?
Question 6:
Part (a)
What are the two methods to account for by-products? Which is the more
appropriate method to use and why?
Part (b)
The Carolina Company prepares lumber for companies who manufacture
furniture. The main product is finished lumber with a by-product of wood
shavings. The by-product is sold to plywood manufacturers. For August 2020,
the manufacturing process incurred $332,000 in total costs. Eighty thousand
board feet of lumber were produced and sold along with 6,800 pounds of
shavings. The finished lumber sold for $6.00 per board foot and the shavings
sold for $0.60 a pound. There were no beginning or ending inventories.
Required: Prepare an income statement showing the by-product as:
(1) a cost reduction during production and
(2) a revenue item when sold
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