Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processes them into the following three types of lumber products: 1. Studs for residential construction (e.g., walls and ceilings) 2. Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings) 3. Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties) These products are the result of a joint sawmill process that involves removing bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, 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 typical month Joint production costs Materials (rough timber logs) Debarking (labor and overhead) Sizing (labor and overhead) Product cutting (labor and overhead) Total joint costs $500,000 50,000 200,000 260,000 $1,010,000 Product yield and average sales value on a per-unit basis from the joint process are as follows: Monthly Fully Processed Product Output Sales Price Studs 75,000 10 Decorative pieces 5,000 100 Posts 20,000 20 Posts 20,000 20 The studs are sold as rough-out lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SST sawmill. This additional processing costs 551 $80,000 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 pieces where the sales price averages $60 per unit. Required: 1. Based on the information given for Sonimad Sawmill, Inc., allocate the joint processing costs of $1,010,000 to each of the three product lines using the: a. Relative sales-value-at-spit-off method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to 8835 and entered as "88.35" percent. Monthly Unit Output Sales Price per Unit Relative Sales Value at Split-Off Percent of Sales Allocated Joint Costs Stude 75,000 Decorative pieces 5,000 Posts 20,000 20 % % Total (Note: Difference due to rounding.) b. Physical units method at split-oft Check My Work Units Percent Joint Cost 010.000 Allocated Joint Costs O b. Physical units method at split-off. Allocated Joint Units Percent x Joint Cost Costs Studs 75,000 v % 1,010,000 Decorative pieces Posts 5,000 20,000 " " 1,010,000 Total c. Estimated net realizable value method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent. Fully Processed Monthly Unit Output Studs 75,000 Decorative pieces Ox Posts 20,000 Total (Note: Difference due to rounding) Ch My Wire Sales Price per Unit Net Realizable Value B 100 20 Percent of Value Estimated Allocated Joint Costs physical units method allocates the cost in proportion to the number of units and is useful when the value of one product is close to the value of another product. c. The net realizable value method is used when one or more of the joint products cannot be sold at spilt-off. In this case, a hypothetical market value is constructed so that joint cost allocation can be done as close to the split-off point as possible. 2. 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. Monthly unit output Sonimad Sawmill, Inc. Analysis Report Less Normal further processing shrinkage Units available for sale Final sales value Lessis Sales value at split-offi Differential revenue Less: Further processing costs Additional contribution from further processing Check My Won 1. Analyze the firm and give calculatons. Review methods