Question

Snake River Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $470,000 and results in 77,000 units of MSB and 107,000 units of CBL. Each MSB sells for $3, and each unit of CBL sells for $11.

3. Assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $557,800 per production run. During this process, 11,700 units are unavoidably lost; these spoiled units have no value. The remaining units of commercial building lumber are saleable at $11.00 per unit. The mine support braces, although saleable immediately at the split-off point, are coated with a tarlike preservative that costs $270,000 per production run. The braces are then sold for $13.50 each. Using the net-realizable-value basis, compute the completed cost assigned to each unit of commercial building lumber. (Round the calculation of "Relative Proportion" to the nearest whole percent. Round your final answer to 2 decimal places.)

Answer 1

3	Joint	Joint	Sales	Additional	Net Realizable	Relative Proportion	Allocation
	Cost	Products	Value of	Cost of Processing	Value		of Joint Cost
			Final Product
	$470,000	MSB	$   1,039,500*	$270,000	$        769,500	61%	$286,700	(470000 x61% = 286700)
		CBL	1,048,300**	557,800	490,500	39%	183,300	(470000 x39% = 183300)
		Total			$     1,260,000		$470,000
	*$13.50 x 77,000
	**$11 x (107,000 – 11,700)
	Unit cost will be allocated as follows:
	Joint Cost allocated	$      183,300
	Addl. Processing cost	557,800
	Total Cost	$      741,100
	÷ Good Units of CBL(107000-11700)	÷ 95300
	Unit cost (741100 ÷ 95300)	$                  7.78