BY-PRODUCTS

CHAPTER 14
McBee Company processes potatoes which generates two products:
• French Fries (Main Product) sold for P80 per pack
• Potato skin (By-Product) sold for P40 per pack (net of selling costs)

Data in number of packs in May 2018 are as follows:

METHOD A: BY-PRODUCTS RECOGNIZED WHEN SOLD

(500/2,500) x 125,000

(500/2,500) x 119,000

66,000 / 166,000

64,800 / 160,000
METHOD B: BY-PRODUCTS RECOGNIZED WHEN PRODUCED
By-Product is recorded at its net realizable value (NRV)

2,000 X P80

500 X P40

(500/2,500) X 105,000

76,000 / 160,000

350 X P40
METHOD B: BY-PRODUCTS RECOGNIZED WHEN PRODUCED
Joint Costs allocated to by-product inventory (Reversal Cost Method)

Under this method, the cost to be allocated to the by-product is computed so that the by-product will yield the
normal percentage of profit on sales so that the company makes, on the average. To illustrate this method, assume
the following data for the by-product:
• The potato skin by-product can be sold at P45 per pack
• The selling expense are P5 per pack
• The normal net profit of the business is 20% of sales
• Additional manufacturing costs after separation are materials P3,000 and conversion costs P2,000

The estimated cost od the by-product is computed by working back from the estimated sales value, as shown in the
following computation:
Please answer the following:

Chapter 14- Multiple choices –Theoretical (1-13) Computational (1-10)

Quiz on Monday (Chapter 14)