Decision making as to process further

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Reference no: EM1311774

Decision making as to process further or sale out.

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSBs) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each unprocessed unit of MSB sells for $2 per unit and each unprocessed unit of CBL sells for $4 per unit.

If the CBL is processed further at a cost of $200,000, it can be sold at $10 per unit but 10,000 units are unavoidably lost (with no discernible value). The MSB units can be coated with a preservative at a cost of $100,000 per production run and then sold for $3.50 each.

a)If no further work is done after the initial milling process, calculate the cost of CBL using physical quantities to allocate the joint cost.

b)If no further work is done after the initial milling process, calculate the cost of MSB using relative sales value to allocate the joint cost.

c)Should MSB and CBL be processed further or sold immediately after initial milling?

d)Given your decision in (c), prepare a schedule computing the completed cost assigned to each unit of MSB and CBL as charged to finished goods inventory. Use net realizable value for allocating joint costs.

Reference no: EM1311774

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