Question 6: Joint Product Cost Allocation

Timberlake Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CSL). A standard product run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each unit of MSB sells for $2 and each unit of CBL sells for $4.

Required:

a. Calculate the amount of joint costs allocated to each product on a physical-units basis. (2 marks)

b. Calculate the amount of joint costs allocated to each product on a relative-salesvalue basis. (2 marks)

c. Assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no value. The remaining units of commercial building lumber are saleable at $10 per unit. The mine support braces, although saleable immediately at the split-off point, are coated with a tarlike preservative that costs $100,000 per production run. The braces are then sold for $5 each. Using the net-realizable-value basis, calculate the amount of joint costs allocated to each product, and compute the completed cost assigned to each unit of commercial building lumber. (6 marks)

d. If Timberlake Sawmill chose not to process the mine support braces beyond the split-off point, the contribution from the joint milling process would increase or decrease by what amount? (5 marks)