The Vancouver Company, using a process system, manufacture work boots, its main product, and wallets, its by-product. They both emerge at the split-off point from Departmen 1. The work boots require no additional processing. The wallets are transferred in a ratio or 5:1. Sales of the main product to the by-product had this same ratio: 2,000 pairs of boots and 400 wallets were produced and sold during the period. The boots are sold for P1,000 a pair and the wallets for P100 a piece. Total production costs were P1,200,000 for Department 1 and 750,000 for Department 2. Total selling and administrative expenses for the mam product and by-product were 10% and 2%, respectively, of their sales revenue. The Vancouver Company expects a 30% gross profit from its by-products. Required: 1. Prepare an income statement using the a. Net realizable value method b. Reversal cost method
The Vancouver Company, using a process system, manufacture work boots, its main product, and wallets, its by-product. They both emerge at the split-off point from Departmen 1. The work boots require no additional processing. The wallets are transferred in a ratio or 5:1. Sales of the main product to the by-product had this same ratio: 2,000 pairs of boots and 400 wallets were produced and sold during the period. The boots are sold for P1,000 a pair and the wallets for P100 a piece. Total production costs were P1,200,000 for Department 1 and 750,000 for Department 2. Total selling and administrative expenses for the mam product and by-product were 10% and 2%, respectively, of their sales revenue. The Vancouver Company expects a 30% gross profit from its by-products. Required: 1. Prepare an income statement using the a. Net realizable value method b. Reversal cost method
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:THhe vancouver Company, using a process system, manufacture work boots, its main
product, and wallets, its by-product. They both emerge at the split-off point from Department
1. The work boots require no additional processing. The wallets are transferred in a ratio of
5:1. Sales of the main product to the by-product had this same ratio: 2,000 pairs of boots and
400 wallets were produced and sold during the period. The boots are sold for P1,000 a pair
and the wallets for P100 a piece. Total production costs were P1,200,000 for Department 1
and 750,000 for Department 2. Total selling and administrative expenses for the main.
product and by-product were 10% and 2%, respectively, of their sales revenue. The
Vancouver Company expects a 30% gross profit from its by-products.
Required:
1. Prepare an income statement using the
a. Net realizable value method
b. Reversal cost method
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