I'm having trouble getting a grasp of this question even after seeing the explanation solution. Does anyone understand it/can explain it
Mig Co., which began operations this year, produces gasoline and a gasoline byproduct. The following information is available pertaining to current-year sales and production:
Total production costs to split-off point $120,000
Gasoline sales 270,000
Byproduct sales 30,000
Gasoline inventory, end of year 15,000
Additional byproduct costs:
Marketing 10,000
Production 15,000
Mig accounts for the byproduct at the time of production. What are Mig's current-year cost of sales for gasoline and the byproduct?
A.
Gasoline: $105,000; Byproduct: $25,000
B.
Gasoline: $115,000; Byproduct: $0
C.
Gasoline: $108,000; Byproduct: $37,000
Correct D.
Gasoline: $100,000; Byproduct: $0
Total production costs to split-off point $120,000
Less:
Byproduct sales $30,000
Marketing costs (10,000)
Additional production costs (15,000)
——–
Cost recovery from byproduct 5,000
——–
Production cost allocated to gasoline 115,000
Less gasoline inventory, end of year 15,000
——–
Cost of sales of gasoline $100,000
========
There is no cost of sales for byproduct because the excess of sales over additional cost related to byproduct is treated as a reduction in cost of the main product, gasoline.
.