A lumber mill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. Type 1-400,000 bd. ft. priced to sell at $0.12 per bd. ft. Type 2- 400,000 bd. ft. priced to sell at $0.06 per bd. ft. Type 3- 200,000 bd. ft. priced to sell at $0.04 per bd. ft.
A) $40,000; $24,000.
B) $24,000; $8,000.
C) $13,333; $4,444.
D) $24,000; $12,000.
E) $16,000; $16,000.

Question

Quizplus · Accepted Answer

To allocate the cost to Type 1 and Type 2 lumber, we need to determine the total board feet of these two types combined and the proportion of the total board feet they represent.

Total board feet of Type 1 and Type 2 lumber: 
400,000 + 400,000 = 800,000 board feet

Proportion of total board feet: 
Type 1: 400,000 / 800,000 = 0.5 
Type 2: 400,000 / 800,000 = 0.5

Using the value basis, we allocate the cost based on the proportion of value for each type.

Cost allocated to Type 1 lumber: 
0.5 * $40,000 = $20,000

Cost allocated to Type 2 lumber: 
0.5 * $40,000 = $20,000

Therefore, the cost to be allocated to Type 1 and Type 2 lumber is $20,000 each, so the answer is D.

A Lumber Mill Bought a Shipment of Logs for $40,000