Question:
(Accounting for by-products) A by-product produced from processing potatoes into the joint products of frozen potato patties and potatoes for dehydration is potato skins. Potato skins can be sold to restaurants for use in preparing appetizers. The additional processing and disposal costs associated with such by-product sales are $0.30 per pound of skins. During May 2001, Homestead Potato Processors produced and sold 45,000 pounds of potato skins for $23,850. In addition, joint cost for its dehydrated potatoes and frozen potato patties totaled $60,000, and 80 percent of all joint production was sold for $79,000.Nonfactory operating expenses for May were $7,600.
a. Prepare an income statement for Homestead Potato Processors if sales of thby-product are shown as other revenue and its additional processing and disposalcosts are shown as additional cost of goods sold of the joint products.
b. Prepare an income statement for Homestead Potato Processors if the net realizable value of the by-product is shown as other income.
c. Prepare an income statement for Homestead Potato Processors if the net realizable value of the by-product is subtracted from the joint cost of the main products.
d. Which of the above presentations do you think would be most helpful to managers and why?