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:
Product yield and average sales value on a per-unit basis from the joint process are as follows:
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
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
- b. Physical units method at split-off
- c. Estimated net realizable value method
- 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. Be sure to provide all calculations.
- 3. Assume Sonimad Sawmill, Inc., announced that in six months it will sell the rough-cut product at split-off due to increasing competitive pressure. Identify at least three types of likely behavior that will be demonstrated by the skilled labor in the planing and sizing process as a result of this announcement. Explain how this behavior could be improved by management. (CMA adapted)
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Chapter 7 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processesthem 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 fencesaround ranch properties)These products are the result of a joint sawmill process that involves removing bark from thelogs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cuttingthe individual products from the logs, depending upon the type of wood (pine, oak, walnut, ormaple) and the size (diameter) of the log. The studs are sold as rough-cut lumber after emerging from the sawmill operation without fur-ther 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…arrow_forwardForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to each product line based on the percentage of thousand board feet produced by the product line. Your accounting firm has been retained by ForestLand for three years. You have been assigned to properly allocate support department costs. Your manager wants the allocation to be as accurate as possible and has instructed you to use the reciprocal services method. She reminds you that revenue from by-products are used to offset costs. You begin your research…arrow_forwardThe DecorIdeas Company manufactures hand-crafted natural wood displaycupboards. Currently the company makes only one size of display cupboard, which is60-inch height, 48-inch width, and 19-inch depth; and has 6 shelves. The finalproduct consists of a routed, sanded, assembled, and stained oak wood cupboard.Direct materials include oak shelving wood and hickory plywood backing board.Other materials, such as wood screws, sand paper, stain, wood glue, and packaging,are treated as indirect materials. DecorIdeas is preparing budgets for the fourthquarter ending December 31, 2022.For each requirement below prepare budgets by month for October, November, andDecember, and a total budget for the quarter. The previous year’s sales (2021/22) forthe corresponding period were:OctoberNovemberDecemberJanuaryFebruary2,0002,8004,0004,4003,600display cupboardsdisplay cupboardsdisplay cupboardsdisplay cupboardsdisplay cupboardsThe company expects the above volume of display cupboard sales to increase by…arrow_forward
- 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…arrow_forwardPhysical 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…arrow_forwardClassify each of the following activities for a bed-frame manufacturer as either unit-level, batch-level, product-level, or facility-level: 1. Ordering of glue and nails 2. Design of bed frames 3. Depreciation of manufacturing building 4. Sanding the wood 5. Management salaries 6. Property taxes 7. Staining of furniture 8. Cutting the wood 9. Setting up equipment to make children’s bed frames 10.…arrow_forward
- D Corporation is one of the major producers of prefabricated houses in the home buildingindustry. The corporation consists of two divisions:1. Bell Division, which acquires the raw materials to manufacture the basic house components and assembles them into kits.2. Cornish Division, which takes the kits and constructs the homes for final home buyers.The corporation is decentralized and the management of each division is measured by its income and return on investment. Bell Division assembles seven separate house kits using raw materials purchased at theprevailing market prices. The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set by the corporate management of D Corporation using prices paid by Cornish when it buys comparable units from outside sources. The smaller kits with the lower prices have become a larger portion of the units sold because the final house buyer is faced with prices that are increasing more rapidly than personal…arrow_forwardStetson Manufacturing builds custom wooden cabinets. Classify the following items as a) what category of product costs and b) whether the item is a prime or conversion cost. Product Costs Prime\Conversion Cost Cost of Hardware (Slides, Handles, etc.) Cost of Wood Depreciation on Production Equipment Factory Property Taxes Factory Rent Glue Production Supervisor Salary Utilities for Factory Wages for Maintenance Workers Wages of Assembly Workers Wages of Finishing Workersarrow_forwardDee Corporation is one of the major producers of pre-fabricated houses in the home building industry. Thecorporation consists of two divisions:1. Bell Division, which acquires the raw materials to manufacture the basic house components andassembles them into kits.2. Cornish Division, which takes the kits and constructs the homes for final home buyers.The corporation is decentralized and the management of each division is measured by its income and return oninvestment.Bell Division assembles seven separate house kits using raw materials purchased at the prevailing market prices.The seven kits are sold to Cornish for prices ranging from US$45,000 to US$98,000. The prices are set bycorporate management of Dee Corporation using prices paid by Cornish when it buys comparable units fromoutside sources. The smaller kits with the lower prices have become a larger portion of the units sold becausethe final house buyer is face with prices that are increasing more rapidly than personal income.…arrow_forward
- Nizam Company produces speaker cabinets. Recently, Nizam switched from a traditional departmental assembly line system to a manufacturing cell in order to produce the cabinets. Suppose that the cabinet manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell: a. Depreciation on electric saws, sanders, and drills used to produce the cabinets b. Power to heat and cool the plant in which the cell is located c. Salary of cell supervisor d. Wood used to produce the cabinet housings e. Maintenance for the cells equipment (provided by the maintenance department) f. Labor used to cut the wood and to assemble the cabinets g. Replacement sanding belts h. Cost of janitorial services for the plant i. Ordering costs for materials used in production j. The salary of the industrial engineer (she spends about 20 percent of her time on work for the cell) k. Cost of maintaining plant and grounds l. Cost of plants personnel office m. Depreciation on the plant n. Plant receptionists salary and benefits Required: Identify which cost assignment method would likely be used to assign the costs of each of the preceding activities to the cabinet manufacturing cell: direct tracing, driver tracing, or allocation. When driver tracing is selected, identify a potential activity driver that could be used for the tracing.arrow_forwardAvett Manufacturing Company allows employees to purchase materials, such as metal and lumber, for personal use at a price equal to the company’s cost. To purchase materials, an employee must complete a materials requisition form, which must then be approved by the employee’s immediate supervisor. Brian Dadian, an assistant cost accountant, then charges the employee an amount based on Avett’s net purchase cost.Brian is in the process of replacing a deck on his home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, Brian reviewed all the purchase invoices for the past year. He then used the lowest price to compute the amount due the company for the lumber.The Institute of Management Accountants (IMA) is the professional organization for managerial accountants. The IMA has established four principles of ethical conduct for its members: honesty, fairness, objectivity, and responsibility. These…arrow_forwardAvett Manufacturing Company allows employees to purchase materials, such as metal and lumber, for personal use at a price equal to the company's cost. To purchase materials, an employee must complete a materials requisition form, which must then be approved by the employee's immediate supervisor. Brian Dadian, an assistant cost accountant, then charges the employee an amount based on Avett's net purchase cost. Brian is in the process of replacing a deck on his home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, Brian reviewed all the purchase invoices for the past year. He then used the lowest price to compute the amount due the company for the lumber. The Institute of Management Accountants (IMA) is the professional organization for managerial accountants. The IMA has established four principles of ethical conduct for its members: honesty, fairness, objectivity, and responsibility. These…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub