The Waste Management Company produces napkins and paper towels from recycled paper. After processing 100 pounds of waste paper, the company produces 25 boxes of napkins, and 75 boxes of paper towels. The unit price for a box of napkin is $12. The unit price for a box of paper towel is $6. Usually, 40 pounds of the pulp cannot be used for either napkins or paper towels, and it is considered as a byproduct.

In September, the company processed 125,000 pounds of paper and had joint-costs of $600,000. 25,000 boxes of napkins and 85,000 boxes of paper towels sold. 43,000 pounds of pulp were also sold at $0.70 per pound.

1. Assume that there were no beginning inventories. Assume that the Waste Management Company allocates the joint costs using sales value at split-off method and accounting for the by-product using the production method. What is the ending inventory cost for each product? Calculate the gross margin for the organization as a whole.

2. Assume that there were no beginning inventories. Assume that the Waste Management Company allocates the joint costs using sales value at split-off method and accounting for the by-product using the sales-value method. What is the ending inventory cost for each product? Calculate the gross margin for the organization as a whole.

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Solution The production of napkins and paper towel from 125000 pounds of waste paper Napkins 25 of 1... View the full answer