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: 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 totaling 500,000 board feet as follows at a joint cost of $300,000:  What amount of joint costs will be allocated to first and second using the physical units method?

Quizplus · Accepted Answer

Under the physical units method, joint costs are allocated based on the relative proportion of output. In this case, first and second grades of lumber total 300,000 board feet, or 60% (300,000/500,000) of the total output. Therefore, $300,000 x 60% = $45,000 of joint costs will be allocated to first and second grades of lumber.

Suppose That a Sawmill Processes Logs into Four Grades of Lumber