Question

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:

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: Studs for residential construction (e.g., walls and ceilings) Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings) 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) 50,000   Sizing (labor and overhead) 200,000   Product cutting (labor and overhead) 250,000     Total joint costs $1,000,000 Product yield and average sales value on a per-unit basis from the joint process are as follows: 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 $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 Output Sales Price per Unit Relative Sales Value at Split-Off Percent of Sales Allocated Joint Costs Studs fill in the blank 193db3fcd000ff8_1 $fill in the blank 193db3fcd000ff8_2 $fill in the blank 193db3fcd000ff8_3 fill in the blank 193db3fcd000ff8_4 % $fill in the blank 193db3fcd000ff8_5 Decorative pieces fill in the blank 193db3fcd000ff8_6 fill in the blank 193db3fcd000ff8_7 fill in the blank 193db3fcd000ff8_8 fill in the blank 193db3fcd000ff8_9 % fill in the blank 193db3fcd000ff8_10 Posts fill in the blank 193db3fcd000ff8_11 fill in the blank 193db3fcd000ff8_12 fill in the blank 193db3fcd000ff8_13 fill in the blank 193db3fcd000ff8_14 % fill in the blank 193db3fcd000ff8_15 Total $fill in the blank 193db3fcd000ff8_16 fill in the blank 193db3fcd000ff8_17 % $fill in the blank 193db3fcd000ff8_18 (Note: Difference due to rounding.) b. Physical units method at split-off. Units Percent x Joint Cost = Allocated Joint Costs Studs fill in the blank 193db3fcd000ff8_19 fill in the blank 193db3fcd000ff8_20% $fill in the blank 193db3fcd000ff8_21 $fill in the blank 193db3fcd000ff8_22 Decorative pieces fill in the blank 193db3fcd000ff8_23 fill in the blank 193db3fcd000ff8_24% fill in the blank 193db3fcd000ff8_25 fill in the blank 193db3fcd000ff8_26 Posts fill in the blank 193db3fcd000ff8_27 fill in the blank 193db3fcd000ff8_28% fill in the blank 193db3fcd000ff8_29 fill in the blank 193db3fcd000ff8_30 Total fill in the blank 193db3fcd000ff8_31 $fill in the blank 193db3fcd000ff8_32 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 fill in the blank 193db3fcd000ff8_33 $fill in the blank 193db3fcd000ff8_34 $fill in the blank 193db3fcd000ff8_35 fill in the blank 193db3fcd000ff8_36 % $fill in the blank 193db3fcd000ff8_37 Decorative pieces fill in the blank 193db3fcd000ff8_38 fill in the blank 193db3fcd000ff8_39 fill in the blank 193db3fcd000ff8_40 fill in the blank 193db3fcd000ff8_41 % fill in the blank 193db3fcd000ff8_42 Posts fill in the blank 193db3fcd000ff8_43 fill in the blank 193db3fcd000ff8_44 fill in the blank 193db3fcd000ff8_45 fill in the blank 193db3fcd000ff8_46 % fill in the blank 193db3fcd000ff8_47 Total $fill in the blank 193db3fcd000ff8_48 fill in the blank 193db3fcd000ff8_49 % $fill in the blank 193db3fcd000ff8_50 (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 fill in the blank 05c8b805f004050_1 fill in the blank 05c8b805f004050_3 fill in the blank 05c8b805f004050_5 Final sales value $fill in the blank 05c8b805f004050_6 fill in the blank 05c8b805f004050_8 Differential revenue $fill in the blank 05c8b805f004050_9 fill in the blank 05c8b805f004050_11 Additional contribution from further processing $fill in the blank 05c8b805f004050_12

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 $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.

Answer 1