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:

Learning Curve

The process of becoming more efficient or proficient at a task or understanding a subject, typically through experience or practice.

Liability of Foreignness

The disadvantages or additional costs that firms operating in a foreign country face compared to local firms.

Geographic Distance

Reflects the physical space between two points on the earth, often impacting economic, social, and political interactions.

Nonequity Modes

International business arrangements that do not involve the exchange of ownership shares, such as licensing agreements and management contracts.