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) 240,000 Total joint costs $1,000,000 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 $8 Decorative pieces 5,000 100 Posts 20,000 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 $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 $1,000,000 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 Sales Price Relative Sales Value Percent of Allocated Joint 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. Sales Price Relative Sales Value Percent of Allocated Joint Monthly Unit Output per Unit at Split-Off Sales Costs Studs 75,000 $ % $ Decorative pieces 5,000 % Posts 20,000 % Total % $ (Note: Difference due to rounding.) b. Physical units method at split-off. Allocated Joint Units Percent Joint Cost Costs Studs 75,000 % $ Decorative pieces 5,000 % Posts 20,000 % Total 100,000 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 Estimated Sales Price Net Realizable Percent of Allocated Monthly Unit Output per Unit Value Value Joint Costs $ $ Studs % $ Decorative pieces % Posts % $ Total % $ (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 Less: Normal further processing shrinkage Units available for sale Final sales value Less: Sales value at split-off Differential revenue Less: Further processing costs Additional contribution from further processing $
