Sanjana’s Silk Shirts (SSS) hand-makes blouses and sells them to high-end department stores. SSS buys bolts of silk for $300 each. Out of each bolt it gets 30 blouses, which it sells for $90 each. SSS’s new manager has suggested taking the scraps left after cutting out the blouses and using them to make scarves. By carefully cutting the blouses, SSS can produce 6 scarves from each bolt, which it can sell for $25 each. During September, SSS buys 50 bolts of silk and spends an additional $10,000 on the cutting and sewing process. By the end of the month, SSS sells 1200 blouses and 260 scarves made from these bolts. Because the scarves are lower in value than the blouses, SSS decides to treat the scarves as a byproduct.
REQUIRED
1. Assuming SSS accounts for the byproduct using the production method, what is the invent toriable cost of each product and SSS’s gross margin?
2. Assuming SSS accounts for the byproduct using the sales method, what is the inventori able cost of each product and SSS’s gross margin?
3. Show all journal entries for the month of September assuming SSS accounts for the byproduct using (a) the production method and (b) the sales method.