Question

Problem 17-27 Joint Costs (LO 17-4, 17-5)

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Snake River Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $460,000 and results in 76,000 units of MSB and 106,000 units of CBL. Each MSB sells for $2, and each unit of CBL sells for $10.

Problem 17-27 Part 4

4. If Snake River Sawmill chose not to process the mine support braces beyond the split-off point, the contribution from the joint milling process would increase or decrease by what amount?

Answer 1

Relative sales value:

Type	units	price	sales revenue	%of total
MSB	76000	$2	$252,000	19.21%
CBL	106000	$10	$1,060,000	81.79%
Total			1,312,000	100%

Allocation of joint costs:

MSB = 19.21% * 460,000 = $ 88,366

CBL = 81.79% * 460,000 = $ 376,234

If the production before the split off point is halted. There will be a decline of $ 88,366.