Pyramid Printing Company’s Controller Pete Roberts Has Been
Pyramid Printing Companys Controller Pete Roberts Has Been Approach
Pyramid Printing Company’s controller, Pete Roberts, has been approached by the company’s president, Mike Blackwell, to optimize green sustainability initiatives and work with the production staff to maximize recycling income. After conferring with the production and warehouse staff, Pete noted that the company’s paper-roll cores are never fully used due to the timing of the web gluing process. Pete then assessed an opportunity for Pyramid’s paper-roll cores to be sold as a byproduct where the rolls would be stripped and converted into packaging inserts for a major online retailer. What are the characteristics of a byproduct? What methods are used to account for byproducts?
Rationalize which of these possible methods might be best to employ for this scenario. Required: Half to one page only with 1 or 2 reference(s).
Paper For Above instruction
The scenario presented by Pyramid Printing Company's controller, Pete Roberts, revolves around identifying the most appropriate method to account for the byproduct—specifically, the paper-roll cores that are otherwise unused and could be repurposed as packaging inserts for an online retailer. Understanding the characteristics of byproducts and the methods used to account for them is essential for accurate financial reporting and effective decision-making.
A byproduct is generally defined as a secondary product resulting from manufacturing that has relatively little value compared to the main product (Garrison, Noreen, & Brewer, 2018). Byproducts are typically incidentally produced during the manufacturing process and do not constitute the primary focus of operations. Their characteristics include low relative value, incidental production, and often minimal additional processing costs. Because of these attributes, companies treat byproducts differently from main products in accounting for costs and revenues.
The methods used to account for byproducts primarily include the 'deduction method' and the 'net realizable value method.' The deduction method involves recognizing the byproduct's sale proceeds as a reduction of the main product's cost. Under this approach, the revenue from byproduct sales is subtracted from the cost of the main product, effectively reducing reported inventory costs. The net realizable value (NRV) method involves assigning the byproduct's sale proceeds directly to inventory or revenue in proportion to the expected realizable value, and then allocating this value to inventory or expense accordingly.
Given the context of Pyramid Printing's opportunity, the most suitable method would be the net realizable value method. This approach provides a clearer depiction of the financial impact of the byproduct by recognizing its value separately from the main product and aligning revenue recognition with actual sale proceeds. Specifically, since the paper-core stripping process involves converting cores into packaging inserts, it is feasible to determine the NRV based on expected sales to the online retailer. This method also aligns with green sustainability initiatives and transparency in financial reporting, providing stakeholders with an accurate view of additional revenue streams generated from waste material.
In conclusion, employing the net realizable value method enables Pyramid Printing to accurately account for the value of the used cores as a byproduct, ensures proper reflection of income, and supports sustainability efforts by monetizing waste material. This method promotes both environmental responsibility and financial integrity, aligning with modern corporate social responsibility standards.
References
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial accounting (16th ed.). McGraw-Hill Education.