Calculating Joint Cost and Completed Cost: Sawmill Example
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Allegheny 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 $750,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $5, and each unit of CBL sells for $10.
1. Calculate the amount of joint cost allocated to commercial building lumber (CBL) on a physical units basis.
2. Calculate the amount of joint cost allocated to the mine support braces (MSB) on a relative-sales value basis.
3. Assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $1,000,000 per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no value. The remaining units of commercial building lumber are saleable at $25.00 per unit. The mine support braces, although saleable immediately at the split-off point, are coated with a tar like preservative that costs $250,000 per production run. The braces are then sold for $12.50 each. Using the net-realizable-value basis, compute the completed cost assigned to each unit of commercial building lumber.
4. If Allegheny River Sawmill chose not to process the mine support braces beyond the split off point, the contribution from the joint milling process would increase or decrease by what amount?
5. Did you use the joint cost allocation results in answering requirement (4)? If so, how? Why did you use or not use the allocation results?
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Solution Summary
This solution assists with calculations regarding joint costs and completed costs for Allegheny River Sawmill.
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