A sawmill processes logs into four grades of lumber totalling 500,000 board metres as follows at a joint cost of $300,000: $\begin{array}{lcc}
\text { Grade } & \text { Board Metres } & \text { Final Sales Value }\
\text { First and second } & 75,000 & \$ 56,250 \
\text { No. } 1 \quad\text { common } & 200,000 & 180,000 \
\text { No. } 2 \quad\text { common } & 100,000 & 105,000 \
\text { No. } 3 \quad\text { common } & 125,000 & 127.500
\end{array}$

- What is the gross profit of No.3 common if the constant gross margin percentage method is used?

Question

A sawmill processes logs into four grades of lumber totalling 500,000 board metres as follows at a joint cost of $300,000: $\begin{array}{lcc}
\text { Grade } & \text { Board Metres } & \text { Final Sales Value }\
\text { First and second } & 75,000 & \$ 56,250 \
\text { No. } 1 \quad\text { common } & 200,000 & 180,000 \
\text { No. } 2 \quad\text { common } & 100,000 & 105,000 \
\text { No. } 3 \quad\text { common } & 125,000 & 127.500
\end{array}$

- What is the gross profit of No.3 common if the constant gross margin percentage method is used?

Quizplus · Accepted Answer

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

A Sawmill Processes Logs into Four Grades of Lumber Totalling