Sawmill:

Joint manufacturing costs: $900,000

Quantity Produced Price at Split-Off

Grade (Board Feet) (per 1,000 Board Ft.)

Firsts and seconds 1,500,000 $300

No. 1 common 3,000,000 225

No. 2 common 1,875,000 140

No. 3 common 1,125,000 100

Total 7,500,000

1Allocate the joint manufacturing costs to each grade, and calculate the cost per board foot for each grade: (a) using the physical units method of allocation and (b) using the sales-value-at-split-off method. Which method should the mill use? Explain. What is the effect on the cost of each proposed job if the mill switches to the sales-value-at-split-off method?.