By-product costing and entries


By-Product Costing and Entries. The Owens Chemical Company produces a product known as Ole. In manufacturing this chemical, a by-product results which can be sold as is for S.20 a kilogram or processed further and sold at $.50 a kilogram. The additional processing requires materials of S3,000, labor of $2,000^, and factory overhead of $1,000.

The manufacturing costs of the main product and by-product up to the point of separation for the month of February were





Factory overhead


These costs were sufficient to produce 150,000 kilograms of Ole and 20,000 kilograms of the by-product.

Required: Entries for the by-product when it is

(a) Stored, without assigning it any cost, and later sold. No additional costs have been added.

(b) Not further processed but stored and priced, using market price to secure its value and reducing the cost of the main product by the amount allocated to the by-product.

(c) Further processed and stored, no costs prior to separation being allocated to it.

(d) Further processed and stored, the cost prior to separation being allocated to it, using the market values at the point of separation for allocating costs prior to separation. The main product sells at $2 per kilogram.

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Accounting Basics: By-product costing and entries
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