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.2 common using the constant gross margin percentage method?

Question

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.2 common using the constant gross margin percentage method?

Quizplus · Accepted Answer

To allocate joint costs using constant gross margin percentage method, we need to calculate the gross margin percentage for each type of lumber.
For No. 2 common:
Sales value per board foot = $0.20
Variable costs per board foot = $0.12
Contribution margin per board foot = $0.08
Gross margin percentage = (contribution margin / sales value) x 100
= (0.08 / 0.20) x 100
= 40%
Similarly, we can calculate the gross margin percentage for other grades of lumber:
No. 1 common = 50%
No. 3 common = 25%
No. 4 common = 10%
Total gross margin percentage = 125%

To allocate joint costs to No. 2 common:
Joint costs allocated to No. 2 common = (gross margin percentage of No. 2 common / total gross margin percentage) x joint costs
= (40 / 125) x $300,000
= $96,000
Therefore, the answer is C) $67,200.

A Sawmill Processes Logs into Four Grades of Lumber Totaling