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 No.1 common using the final sales value 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 No.1 common using the final sales value method?

Quizplus · Accepted Answer

The final sales value method allocates joint costs based on the percentage of the final sales value of each grade of lumber. Given the following information:

- No.1 common grade of lumber accounts for 25% of the total sales value ($1,200,000 out of $4,800,000 total sales value)
- Joint costs are $300,000

We can calculate the joint costs allocated to No.1 common as follows:

Joint costs allocated to No.1 common = (25% x $300,000) = $75,000

However, this is the joint cost allocated to all grades. To find out the joint cost allocated to only No.1 common, we need to subtract the joint costs allocated to the other grades:

Joint costs allocated to No.1 common = $75,000 - ($40,800 + $19,200 + $3120) = $75,000 - $63,120 = $11,880

Therefore, the answer is B: $11,880.

Suppose That a Sawmill Processes Logs into Four Grades of Lumber