Accounting for by-product - The Bishop's Falls Lumber Corporation harvests lumber and prepares it for sale to wholesalers of lumber and wood products. The main product is finished lumber, which is sold to wholesale construction suppliers. A byproduct of the processs is wood pellets, which are sold to wholesalers of wood pellet stoves. During December 2013, the manufacturing process incurred $664,000 in total costs; 160,000 board feet of lumber were produced and sold along with 40,000 pounds of pellets. The finished lumber sold for $10 per board foot and the pellets sold for $4 per 100-pound bag. There were no beginning or ending inventories.
a. Compute the December 2013 gross margin for Bishop's Falls Lumber Corporation assuming that by-product revenues reduce joint production costs.
b. How would your answer change if by-products are accounted for as revenue when sold?