Question

In a sawmill, boards and pellets are produced (of the remains that do not become boards). The joint costs of the sawmill before the split point in production (for drying, storage and handling) amount to $ 400,000 per year. In total, 2000 tonnes of boards and 900 tonnes of pellets are produced during the year. The selling price per ton of sawn timber is $ 7000 and $ 1200 per ton of pellets.

a)Distribute the common costs according to the division method.
b)Distribute the common costs according to the sales value.

Answer 1

	Total Joint Cost of Saw Mill = $ 400,000 per Year
		Boards	Pellets	Total
i.	Selling Price per Tonn	$7,000	$1,200
ii.	Productionn (in tonns)	2,000	900	2,900
	Distribution of Common Costs:
a	Division Method	$          275,862.07	$   124,137.93	$         400,000
	Joint Cost per tonn = Total Joint Cost/Total Production	( $ 137.93 * 2,000 Ton)	( $ 137.93 * 900 Ton)
	Joint Cost per tonn = $ 400,000/ 2,900
	Joint Cost per tonn = $ 137.931
b	Sales Value Method
	Sales Value Method	$          14,000,000	$      1,080,000	$   15,080,000
	(i) * (ii)
	Joint Cost Distribution	$          371,352.79	$      28,647.21	$         400,000
		( $ 400,000/$ 15,080,000)*$ 14,000,000	( $ 400,000/$ 15,080,000)*$ 1,080,000