Question

Sunnyside Sawmill manufactures two lumber products from a joint milling process. The two products developed are:

1) mine support braces (MSB) and2)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 $2.00 per unit and each unprocessed unit of CBL sells for $4.00 per unit.If the CBL is processed further at a cost of $200,000, it can be sold at $10.00 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.

Required:1.Create a table and determine which product(s) should be sold at the split-off point and which product(s)should be processed further.(Hint: you should solve using total revenues and total costs, and not on a per unit basis do too big unit loss on the CBLs.) 2.Based on your solution, allocate the joint product cost to the products using the net realizable value approach, and determined operating profit by product line and in total.

Answer 1

Sunnyside Sawmill Manufacturer Production
Products	Units	Selling Price	Joint Cost at Splittoff Point	Further Cost	Units	Selling Price
MSB	60000	2		0	60000	2
CBL	90000	4		200000	80000	10
			300000
1. Requirment
Products	Units	Selling Price	Sale Value at Splitt off Point	Joint Cost at Splittoff Point	Profit
MSB	60000	2	120000	75000	45000
CBL	90000	4	360000	225000	135000
			480000	300000	180000
Here, It is clearly Evident that, MSB should be Sold at Splitt off Point Only. As coating Cost is not adding extra revenue simply reducing the revnue by -10000 in Whole.
Joint Cost Allocation :	MSB : 300000 X 120000 / 480000 = 75000
			CBL : 300000 - 75000 = 225000
Products	Units	Selling Price	Joint Cost at Splittoff Point	Further Cost	Units Sold after Further Process	Net Sale Value	Cost	Profit
MSB	60000	2	75000	100000	60000	210000	175000	35000
CBL	90000	4	225000	200000	80000	800000	425000	375000
			300000			1010000		410000
As here cost on 10000 Units shall be beared by CBL only.
2. Requirement
Products	Units	Joint Cost Allocation	Net Realisable Value	Further Cost	Net Profit
MSB	60000	62376	210000	100000	47624
CBL	80000	237624	800000	200000	362376
		300000	1010000		410000