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Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making Sonimad Sawmill, Inc. (SSI),...

  1. Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making

    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) $500,500
      Debarking (labor and overhead) 60,050
      Sizing (labor and overhead) 200,000
      Product cutting (labor and overhead) 261,000
        Total joint costs $1,020,000

    Product yield and average sales value on a per-unit basis from the joint process are as follows:

    Product Monthly
    Output
    Fully Processed
    Sales Price
    Studs 70,000 $8
    Decorative pieces 5,000 100   
    Posts 25,000 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 $120,000 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 $1,020,000 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
    Output
    Sales Price
    per Unit
    Relative Sales Value
    at Split-Off
    Percent of
    Sales
    Allocated Joint
    Costs
    Studs $ $ % $
    Decorative pieces %
    Posts %
    Total $ % $

    (Note: Difference due to rounding.)

    b. Physical units method at split-off.


    Units

    Percent

    x

    Joint Cost

    =
    Allocated Joint
    Costs
    Studs % $ $
    Decorative pieces %
    Posts %
    Total $

    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 Monthly
    Unit Output
    Sales Price
    per Unit
    Net Realizable
    Value
    Percent of
    Value
    Estimated Allocated
    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
    Final sales value $
    Differential revenue $
    Additional contribution from further processing $

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