Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable
ID: 2512061 • Letter: P
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: 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) 60,000
Sizing (labor and overhead) 200,000
Product cutting (labor and overhead) 260,000
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 75,000 $8
Decorative pieces 5,000 100
Posts 20,000 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 _______units _______% $_______ $_________
Decorative pieces _______units ________% $ ________ $__________
Posts ________units ________% $_________ $___________
Total _____units $_________
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 _______unit $______________ $_____________ __________% $____________
Decorative pieces ________unit $______________ $_____________ __________% $____________
Posts ________unit $_______________ $____________ _________ % $_____________
Total $_____________ _________ % $_____________
(Note: Difference due to rounding.) .
Feedback 1. a. The sales-value-at split-off method allocates joint cost based on each product’s proportionate share of market or sales value at the split-off point. b. The physical units method allocates the cost in proportion to the number of units and is useful when the value of one product is close to the value of another product. c. The net realizable value method is used when one or more of the joint products cannot be sold at split-off. In this case, a hypothetical market value is constructed so that joint cost allocation can be done as close to the split-off point as possible.
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 ______________
Less: Normal further processing shrinkage ________________
Units available for sale _____________
Final sales value $
Less: Sales value at split-off _______________
Differential revenue $
Less: Further processing costs _____________
Additional contribution from further processing $
Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
1A. Relative sales value method at split-off Product Monthly Output Sales Price Split-off Value % of Sales Allocated Cost Studs 75000 8 600000 46.15 470769 Decorative Pieces 5000 60 300000 23.08 235385 Posts 20000 20 400000 30.77 313846 1300000 100.00 1020000 1B. Physical method at split-off Product Monthly Output % of Sales Allocated Cost Studs 75000 75.00 765000 Decorative Pieces 5000 5.00 51000 Posts 20000 20.00 204000 100000 100 1020000 1C. Estimated Net Realizable Value Product Monthly Output Sales Price Net Value % of Net Value Allocated Cost Studs 75000 8 600000 45.11 460150 Decorative Pieces 4500 100 330000 24.81 253083 Posts 20000 20 400000 30.08 306767 1330000 100.00 1020000 Decorative Pieces 5000-10%=4500 (4500*100)-120000 Additional Cost