Joint Cost Allocation, Process further or sell (SMA, adapated) Doughty Sawmill, Inc. (DSI) purchases logs from independent timber contractors and processes he logs into three types of lumber products.

Studs for residential buildings

Decorative pieces

Posts used a support braces

These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting these logs into a workable size (ranging from 8 to 16ft in length), and then cutting the individual products from the logs.

The joint process results in the following costs of products for a typical month:

Direct Materials (rough timber logs) $485,000

Debarking (labor and overhead) $65,000

Sizing (labor and overhead) $215,000

Product Cutting (labor and overhead) $255,000

Total Joint Costs $1,020,000

Product yields and average sales value on a per-unit basis from the joint process are as follows:

Product Monthly Output of Materials at Splitoff Point Fully Processed Selling Price

Studs 82,000 units $6

Decorative Pieces 2,000 units $110

Posts 18,000 units $16

The studs are sold as rough-cut lumber after emerging from the sawmill operations without further processing by DSI. Also, the post require no further processing beyond the splitoff point. The decorative pieces must be planed and further sized after emerging from the sawmill. This additional processing cost $110,000 per month and normally results in a loss of 10% of the units entering the process. Without this planning and sizing process, there is still an active intermediate marker for the unfinished decorative pieces in which the selling prices average $70 per unit.

Based on the information give for DSI, allocated the joint processing costs of $1,020,000 to the three products using:

Sales value at split off

Physical-measure method (volume in units)

NRV method

2.) Prepare an analysis for DSI that compares processing the decorative pieces further, as it currently does, with selling them as rough-cut product immediate at splitoff.

3.) Assume DSI announced that in six months it will sell the unfinished decorative pieces at splitoff due to increasing competitive pressure. Identify at least three types of likely behavior that will be demonstrated by the skilled labor in the planning-and-sizing process as a result of this announcement. Include in your discussion how this behavior could be influenced by management.