assignment 3-8
.docx
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School
Montclair State University *
*We aren’t endorsed by this school
Course
307
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
docx
Pages
3
Uploaded by ChancellorShark2900
GOALS AND OBJECTIVES
To understand the nature of joint costs and joint products
To understand the purposes of allocation in general AND specifically for joint costs
To understand the different methods available to allocate joint costs
To understand the advantages and disadvantages of each methods, as well as when they can and cannot be used
MAINE CORPORATION
….. 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)
In addition to the main products, the process produces a certain amount of sawdust which, while salable for commercial
use, carries a
very minor total sales value
with respect to the principal products.
Accordingly, the company treats this
sawdust as a
by-product
.
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:
Product yield and average sales value on a per-unit basis from the joint process are as follows:
Also consider the following information about the processing of the company’s products:
The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing.
Also, the posts require no further processing
.
The decorative pieces can be sold rough-cut immediately after processing at an average price of $60 per unit
.
Alternatively, they can be further smoothed and sized after emerging from the sawmill.
This additional processing
costs $100,000 per batch
and normally results in a loss of 10 percent of the units
entering the process.
Therefore,
the company has a choice as to whether or not they should sell the decorative pieces as is, or, put them through the
smoothing and sizing process.
Required:
1.
The company wants your advice as to
whether or not
they should process the decorative pieces further, or, sell the
rough-cut product immediately at split-off.
Prepare an analysis to compare these alternatives.
Be sure to provide all
calculations.
-
Monthly unit output 5,000- normal further processing shrinking 500=4,500
-
Final sales value (4,500 x 1) = 450,000
-
Less: sales value split off (5,000 x 60) = 300,000
-
Differential value: $150,000
-
Less: further processing costs: 100,000
-
Additional contribution costs: 50,000
o
2.
Based on the information, allocate the joint processing costs of $1,000,000 to each of the three product lines using
the following methods.
For each method, provide the journal entry
to record the allocation of the joint cost.
a.
Physical Units Method at split-off
-
Studs:
75,000 75%= $750,000
-
Decorative pieces
5,000
5%= $50,000
-
Posts
20,000 20%= $200,000
-
Total
100,000 100%= $1,000,000
b.
Relative Sales Value at Split-Off Method
-
Studs:
75,000
8
= $600,000
46.15% = $461,539
-
Decorative pieces
5,000
60 = $300,000
23.08%= $230,769
-
Posts
20,000 20= $400,000
30.77%= $307,692
-
Total
100,000
$1,300,000
100%= $1,000,000
c.
Estimated Net Realizable Value Method
-
Studs:
75,000
8
= $600,000
44.44% = $444,445
-
Decorative pieces
5,000 100 = $350,000
25.93%= $259,259
-
Posts
20,000 20= $400,000
29.63%= $296,296
-
Total
100,000
$1,350,000
100%= $1,000,000
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