Question
Glasgow Sawmill Inc. purchases logs from independent timber contracts and processes them into three end products. Studs for building wall frames and ceiling supports Decorative
Glasgow Sawmill Inc. purchases logs from independent timber contracts and processes them into three end products.
- Studs for building wall frames and ceiling supports
- Decorative Beams for fireplace mantels and cathedral ceilings
- Posts for fences, etc.
The joint sawmill process removes bark and cuts the logs. Joint costs include:
Material (logs) $ 500,000
Debarking 50,000
Sizing 200,000
Cutting 250,000
Total Joint Costs $1,000,000
Monthly output and selling prices are:
| Units of Output | Per Unit Sell Price |
Studs | 75,000 | $8
|
Beams | 5,000 | $100
|
Posts | 20,000 | $20
|
Both Studs and Posts are ready for sale after Split-off. Beams require extra processing at a monthly cost of $100,000.
A) Calculate total inventory costs for all three joint products using: (11 marks)
- The Physical method (3 marks)
- The sales value (NRV) method (5 marks)
- Assume by-product for posts and the physical method is used for the remaining products. (3 marks)
B) Should Glasgow sell the rough cut beams at Split-off for $60 a unit or process further and sell as finished Beams. If they sell at Split-off, they will be able to sell 10% more units because there will be no loss due to further processing. (4 marks)
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