Figure 6-6
Suppose that a sawmill processes logs into four grades of lumber totaling 500,000 board feet as follows at a joint cost of £300,000: $$\begin{array} { l c c }
\text { Grade } & \text { Board Feet } & \text { Final Sales Value } \
\text { First and second } & 75,000 & £ 56,250 \
\text { No. } 1 \text { common } & 200,000 & 180,000 \
\text { No. } 2 \text { common } & 100,000 & 105,000 \
\text { No. } 3 \text { common } & 125,000 & 127,500
\end{array}$$
-Refer to Figure 6-6. What is the gross profit of No. 3 common if the constant gross margin percentage method is used?
A)£45,900
B)£168,750
C)£81,600
D)£135,000

Question

Figure 6-6
Suppose that a sawmill processes logs into four grades of lumber totaling 500,000 board feet as follows at a joint cost of £300,000: $$\begin{array} { l c c } 
\text { Grade } & \text { Board Feet } & \text { Final Sales Value } \
\text { First and second } & 75,000 & £ 56,250 \
\text { No. } 1 \text { common } & 200,000 & 180,000 \
\text { No. } 2 \text { common } & 100,000 & 105,000 \
\text { No. } 3 \text { common } & 125,000 & 127,500
\end{array}$$
-Refer to Figure 6-6. What is the gross profit of No. 3 common if the constant gross margin percentage method is used?
A)£45,900
B)£168,750
C)£81,600
D)£135,000

Quizplus · Accepted Answer

The constant gross margin percentage method allocates joint costs based on the ratio of each product's sales value to the total sales value of all products. In this case, the total sales value is £56,250 + £180,000 + £105,000 + £127,500 = £468,750. The sales value of No. 3 common is £127,500, so its share of the joint costs is £127,500 / £468,750 * £300,000 = £81,600. The gross profit is the sales value minus the joint costs, so the gross profit of No. 3 common is £127,500 - £81,600 = £45,900.

Figure 6-6 Suppose That a Sawmill Processes Logs into Four

Figure 6-6
Suppose That a Sawmill Processes Logs into Four