Dawson Corporation Produces a Product Called Blocker, Which Gives Rise

question 121

Essay

Dawson Corporation produces a product called Blocker, which gives rise to a by-product called Spotter. The only costs associated with Spotter are additional processing costs of $4 for each unit. Dawson accounts for Spotter's sales first by deducting its separable costs from its sales and then by deducting this net amount from the cost of sales of Blocker. This year, 9,600 units of Spotter were produced. They were all sold for $8 each. Company operating expenses were $250,000 for the year. Sales revenue and cost of goods sold for Blocker were $1,600,000 and $800,000, respectively. (CPA adapted)
Required:
(a) Calculate the company's gross margin under the current accounting method.
(b) Assume the company changes its accounting method and accounts for the by-product's net realizable value as "other revenue." Calculate the gross margin under the new method.
(c) Under what circumstances would method (a) or (b) be preferred?

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Definitions:

Functional Areas

Specific segments of a business organized around particular activities or tasks, such as marketing, finance, or human resources.

HR Strategy

A detailed plan by the human resources department focusing on long-term workforce management and development to align with the organization's goals.

Internal Fit

The degree to which an organization's internal strategies, systems, and processes are aligned and consistent with each other.

Competitive Business Strategies

Approaches undertaken by businesses to gain a competitive edge in the market, focusing on pricing, product differentiation, market segmentation, and customer service.