Question:
Joint cost allocation: sell immediately or process further. Iowa Soy Products (ISP) buys soy beans and processes them into other soy products. Each ton of soy beans that ISP purchases for $300 can be converted for an additional $200 into 500 pounds of soy meal and 100 gallons of soy oil. A pound of soy meal can be sold at split off for $1 and soy oil can be sold in bulk for $4 per gallon. ISP can process the 500 pounds of soy meal into 600 pounds of soy cookies at an additional cost of $300. Each pound of soy cookies can be sold for $2 per pound. The 100 gallons of soy oil can be packaged at a cost of $200 and made into 400 quarts of Soyola. Each quart of Soyola can be sold for $1.25. There were no beginning inventories on September 1, 2012.
1. What is the gross margin for Tasty, Inc., under the production method and the sales method of byproduct accounting?
2. What are the inventory costs reported in the balance sheet on September 30, 2012, for the main product and byproduct under the two methods of byproduct accounting in requirement 1?