Choice "A" is correct. Changing the accounting from by-product to joint product changes the computation of gross margin because the $1 selling cost is treated differently under each method. Using the by-product method, the $1 selling expense is netted against the $4 selling price to arrive at a $3 deduction from cost of goods sold. Since gross margin is calculated as sales less cost of goods sold, the $1 does flow into the gross margin amount using this method. Using the joint product method, the $1 cost would be a selling expense, which is not included in the calculation of gross margin. Instead, selling expenses are deducted from gross margin (after it is computed) to arrive at net income. Although the total net income is the same under both methods, the joint product method results in an increased gross margin of $1 per unit of May sold.
Choice "c" is incorrect. The $1 selling expense would be deducted from gross margin using the joint product method.
Choice "b" is incorrect. The $4 sales price is included in the calculation of gross margin under both methods.
Choice "d" is incorrect. The $4 sales price is included in calculation of gross margin under both methods.