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)	60,000
Sizing (labor and overhead)	200,000
Product cutting (labor and overhead)	250,000
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 $120,000 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.

	Monthly Unit Output	Sales Price per Unit	Relative Sales Value at Split-Off	Percent of Sales		Allocated Joint Costs
Studs	fill in the blank fcb58dfc0f83013_1	$fill in the blank fcb58dfc0f83013_2	$fill in the blank fcb58dfc0f83013_3	fill in the blank fcb58dfc0f83013_4	%	$fill in the blank fcb58dfc0f83013_5
Decorative pieces	fill in the blank fcb58dfc0f83013_6	fill in the blank fcb58dfc0f83013_7	fill in the blank fcb58dfc0f83013_8	fill in the blank fcb58dfc0f83013_9	%	fill in the blank fcb58dfc0f83013_10
Posts	fill in the blank fcb58dfc0f83013_11	fill in the blank fcb58dfc0f83013_12	fill in the blank fcb58dfc0f83013_13	fill in the blank fcb58dfc0f83013_14	%	fill in the blank fcb58dfc0f83013_15
Total			$fill in the blank fcb58dfc0f83013_16	fill in the blank fcb58dfc0f83013_17	%	$fill in the blank fcb58dfc0f83013_18

(Note: Difference due to rounding.)

b. Physical units method at split-off.

	Units	Percent	x	Joint Cost	=	Allocated Joint Costs
Studs	fill in the blank fcb58dfc0f83013_19	fill in the blank fcb58dfc0f83013_20%		$fill in the blank fcb58dfc0f83013_21		$fill in the blank fcb58dfc0f83013_22
Decorative pieces	fill in the blank fcb58dfc0f83013_23	fill in the blank fcb58dfc0f83013_24%		fill in the blank fcb58dfc0f83013_25		fill in the blank fcb58dfc0f83013_26
Posts	fill in the blank fcb58dfc0f83013_27	fill in the blank fcb58dfc0f83013_28%		fill in the blank fcb58dfc0f83013_29		fill in the blank fcb58dfc0f83013_30
Total	fill in the blank fcb58dfc0f83013_31					$fill in the blank fcb58dfc0f83013_32

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	Sales Price per Unit	Net Realizable Value	Percent of Value		Estimated Allocated Joint Costs
Studs	fill in the blank fcb58dfc0f83013_33	$fill in the blank fcb58dfc0f83013_34	$fill in the blank fcb58dfc0f83013_35	fill in the blank fcb58dfc0f83013_36	%	$fill in the blank fcb58dfc0f83013_37
Decorative pieces	fill in the blank fcb58dfc0f83013_38	fill in the blank fcb58dfc0f83013_39	fill in the blank fcb58dfc0f83013_40	fill in the blank fcb58dfc0f83013_41	%	fill in the blank fcb58dfc0f83013_42
Posts	fill in the blank fcb58dfc0f83013_43	fill in the blank fcb58dfc0f83013_44	fill in the blank fcb58dfc0f83013_45	fill in the blank fcb58dfc0f83013_46	%	fill in the blank fcb58dfc0f83013_47
Total			$fill in the blank fcb58dfc0f83013_48	fill in the blank fcb58dfc0f83013_49	%	$fill in the blank fcb58dfc0f83013_50

(Note: 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 product immediately at split-off.

Sonimad Sawmill, Inc. Analysis Report

Monthly unit output	fill in the blank 79e1b2f9bf9eff9_1
Additional contribution from further processingDifferential revenueFinal sales valueLess: Further processing costsLess: Normal further processing shrinkageLess: Sales value at split-offMonthly unit output	- Select -
Additional contribution from further processingDifferential revenueFinal sales valueLess: Further processing costsLess: Sales value at split-offMonthly unit outputUnits available for sale	- Select -
Final sales value	$fill in the blank 79e1b2f9bf9eff9_6
Additional contribution from further processingDifferential revenueFinal sales valueLess: Normal further processing shrinkageLess: Sales value at split-offMonthly unit outputUnits available for sale	- Select -
Differential revenue	$fill in the blank 79e1b2f9bf9eff9_9
Additional contribution from further processingDifferential revenueFinal sales valueLess: Further processing costsLess: Normal further processing shrinkageMonthly unit outputUnits available for sale	- Select -
Additional contribution from further processing	$fill in the blank