blem 7-35 PHYSICAL UNITS METHOD, RELATIVE SALES PIE-AT-SPLIT-OFF METHOD, NET REALIZABLE VALUE METHOD OBJECTIVE [ and pace plied ntral DECISION MAKING Sominmad Sawmill, Inc., (SSD) purchases logs from independent timber contractors and CMA them into the following three types of lumber products: Studs for residential construction (e.g., walls and ceilings) , Decorative picces (e.g, fireplace mantels and beams for cathedral ceilings) Posts used as support braces (c.g., mine support braces and braces for exterior fences around ranich properties) ts are the result of a joint sawmill process that in volves removing bark from These th logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and cutting the individual products from the logs, depending upon the type of wood pe, oak, walnut, or maple) and the size (diameter) of the log. The joint process results in the following costs and output of products during a typi al month Joint production costs Materials (rough timber logs) Debarking (labor and overhead) Sizing (labor and overhead) Product cutting (labor and overhead) $ 500,000 50,000 200,000 250,000 $1,000,000 or Total joint costs Product yield and average sales value on a per-unit basis from the joint process are as ollows: Fully Processed Sales Price Monthly Output 75,000 5,000 20,000 Product Studs 100 20 The studs are sold as rough-cut lumber after emerging from the sawmill operation with- out further processing by SSI. Also, the posts require no further processing. The decora- tive pieces must be planed and further sized after emerging from the SSI sawmil!. This additional processing costs SSI $100,000 per month and normally results in a loss of 10 percent of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative picces where the sales price averages S60 per unit. Requir I. Based on the information given for Sonimad Sawmill, Inc, allocate the joint proc. essing costs of $1,000,000 to each of the three product lines using the Relative sales-value-at-split-off method Physical units method at split-off Estimated net realizable value method Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further as it presently does, with selling the rough-cut product immediately at split-off. Be sure to provide all calculations Assume Sonimad Sawmill, Inc., announced that in six months it will sell the rough- cut product at split-off due to increasing competitive pressure. Identify at least three types of likely behavior that will be demonstrated by the skilled labor in the planing a. b. c. 2. 8. sizing process as a result of this announcement. Explain how this behavior could be improved by management.(CMA adapted)
