Suppose that a sawmill processes logs into four grades of lumber totalling 500,000 board metres as follows at a joint cost of $300,000: $$\begin{array} { l c c }
\text { Grade } & \text { Bard Metres } & \text { Final sales Value } \
\hline \text { First and second } & 75,000 & \$ 56,250 \
\mathrm { No. } \quad1 \mathrm { common } & 200,000 & 180,000 \
\mathrm { No.\quad2 } \mathrm { common } & 100,000 & 105,000 \
\mathrm { No. }\quad 3 \mathrm { common } & 125,000 & 127,500
\end{array}$$ What amount of joint costs will be allocated to first and second using the physical units method?

Question

Suppose that a sawmill processes logs into four grades of lumber totalling 500,000 board metres as follows at a joint cost of $300,000: $$\begin{array} { l c c } 
\text { Grade } & \text { Bard Metres } & \text { Final sales Value } \
\hline \text { First and second } & 75,000 & \$ 56,250 \
\mathrm { No. } \quad1 \mathrm { common } & 200,000 & 180,000 \
\mathrm { No.\quad2 } \mathrm { common } & 100,000 & 105,000 \
\mathrm { No. }\quad 3 \mathrm { common } & 125,000 & 127,500
\end{array}$$  What amount of joint costs will be allocated to first and second using the physical units method?

Quizplus · Accepted Answer

Under physical units method, joint costs are allocated based on the actual physical units produced. In this case, the total physical units produced is 500,000 board metres. Now, we need to determine the proportion of physical units produced in each grade of lumber.

First Grade: 100,000/500,000 = 0.2 or 20%
Second Grade: 150,000/500,000 = 0.3 or 30%
Third Grade: 150,000/500,000 = 0.3 or 30%
Fourth Grade: 100,000/500,000 = 0.2 or 20%

Using this proportion, we can calculate the joint costs allocated to each grade of lumber:

First Grade: 20% x $300,000 = $60,000
Second Grade: 30% x $300,000 = $90,000

Therefore, the amount of joint costs allocated to first and second grades of lumber using the physical units method is $60,000 and $90,000 respectively. Hence, the correct answer is B.

Suppose That a Sawmill Processes Logs into Four Grades of Lumber