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)	$500,000
Debarking (labor and overhead)	50,000
Sizing (labor and overhead)	200,000
Product cutting (labor and overhead)	260,000
Total joint costs	$1,010,000

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

Product	Monthly Output	Fully Processed Sales Price
Studs	80,000	$8
Decorative pieces	5,000	100
Posts	15,000	20

The studs are sold as rough-cut 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 SSI sawmill. 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 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-split-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.

Physical units Method, Helative Sales valeat Soto Method. Nette Value Method, Dedon Making Somad Sawmill, Inc. (551) purchases logs from Independent timber contractors and processes them into the following the type of bor product 1. Studs for residential construction eo. walls and cering) Decorative pieces o fireplace maty and beans for cathedral coins 3. Post das support braces (... mine support braces and braces for exteriores sound canch properto) These product are the retul de a faint will proces that involves removing bork from the loss, cutting the loos into a workable site range from ca 16 foto and then inte individual products from the loos, depending upon the type of wood pak, walnut, or maple) and the stie diameter of the The joint process results in the following costs and output of products during a typical month Sot productory cost Mira Crough timberos) Detaling labor and overhad) Stang labor and overhead) Product Cattino Ciabor and overhead) 3500.000 50.000 200.000 260.000 Total Joint costs 51,010,000 Product wild and werage sales value ona per from the Joint process areas for Monthly Fully Processed Product Output Sales Price Sius 30,000 $0 Product id aed average sales value on per-unit basis from the joint process as follows Product Monthly Fully Processed Output Sales Price 80,000 $8 5,000 100 Studs Decoratives Po 15,000 20 The studs are sold as rough cut lumber alter emerging from the semiperation without further processing by 551. Also, the posts reculre no further processing. The decorative pieces mot daned and further died after emerging from the SSE aum. This additional processing costs St $100.000 per month and normally tutults in a lot of 10 percent of the unitating the proc. Without this planing and sizing process, there is still an active intermediate market for the antinished decorative pieces where the sales price averages 160 per unit. Required: 1. based on the information given for Sonimad Swamil, Inc., allocate the folded processing costs of $1,000,000 to each of the three penduct lines using the 1. elative ales-value-at-xpft-off method when requlted, round decimal values to our tes before converting to cromapr. Por examolu, Bwind be rounded to 3035 and entered at 8.35 percent Sales Price Monthly Unit Output Relative Sales Value at Split off Percent of Sales Allocated Joint Costs Der Unit Stude Decorative pieces a. dative sales-value at Boltof method. When required, round decimal values to four places before converting to a percent. For example, 809 Would be rouided to 1035 and entered as 88.35 percent Sales Price Monthly Unit Output Relative Sales Value at Split-on Percent of Sales per Unit Allocated Joint Costs Studs Decorative pieces Posts Total (Noter erence due to rounding) Physical method at split Allocated Joint Costs Percent x Joint Cost Decorative place Posts Tocal c. Estimated not realizable value method. When required, round decimal values to four places before converting to a percentage. For 6349 would be rounded to as and stored 188,35 percent Fully Processed Monthly Unit Output Sales Price per Unit Net Realizable Value Percent of Value Estimated Allocated Joint Costs Studs Decorative pieces Posts Total (Neto. Difference due to rounding) 2. Prepare an analysis for Sonimad Sawmill, Inc. to compare processing the decorative pieces further as it presently does, with selling the rough cut productief Sonimad Sawmill, Inc. Analysis Report Monthly unit output 2. Prepare an analysis for Sonimad Sawmill, Inc. to compare processing the decorative pieces further att presently does with wing the rough-out product immediately to Sonimad Sawmill, Inc Analysis Report Monthly unit output Final salet value Different revenue Additional contribution from further processing