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Answer- Correct answer is Option (b) i.e. $ 15.

??????Explanation-

Production cost per unit(MAIN PRODUCT Y) = ? Total manufacturing cost =$ 30000

??????Total Production of Main Product Y = 2000 Units

Under the Sales method, All costs and expenses charged to the main products.

Manufacturing cost per unit ( Y ) = Total manufacturing cost ÷ Total output

MANUFACTURING COST PER UNIT = $ 30000 ÷ 2000 Units = $ 15

There are two methods of accounting for a by-product-The production method and The sales method.

Under the Production method, product’s sales value is recognised in the accounting period in which the product is produced, and the by-product is considered as INVENTORY.

Sales method refers, the value of the by-product is recognised in the accounting period in which the product is sold, and the product is not recorded as INVENTORY.

INCOME METHOD- When the market value of by-product is very small as compared to the main products, the sale value of by-product is men tion as other income in the Profit and Loss Account.

This method is criticized due to following reasons

(1) Valuation of inventory of main products is inflated and no price is assigned to the by-product inventory.

(2) All costs and expenses charged to the main products. It is not scientific.

(3) No attempt is made to control the inventory of by-products and losses due to frauds are possible

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