A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows:
$\begin{array}{ll}\text { Grade } & \text { Production }& \text { Market Price }\\hline
\text { Structural } & 25,000 \text { board feet } &\$ 1,350 / 1,000 \mathrm{bd} \text {.ft. }\
\text { No. 1 Common } & 75,000 \text { board feet }&\$ 750 / 1,000 \mathrm{bd} \text {.ft. }\\text { No. } 2 \text { Common }&100,000 \text { board feet}&\$ 300 / 1,000 \mathrm{bd} \text {.ft. }
\end{array}$
How much of the $70,000 joint cost should be allocated to No. 2 Common?

Question

A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: 
$\begin{array}{ll}\text { Grade } & \text { Production }& \text { Market Price }\\hline
\text { Structural } & 25,000 \text { board feet } &\$ 1,350 / 1,000 \mathrm{bd} \text {.ft. }\
\text { No. 1 Common } & 75,000 \text { board feet }&\$ 750 / 1,000 \mathrm{bd} \text {.ft. }\\text { No. } 2 \text { Common }&100,000 \text { board feet}&\$ 300 / 1,000  \mathrm{bd} \text {.ft. }
\end{array}$
How much of the $70,000 joint cost should be allocated to No. 2 Common?

Quizplus · Accepted Answer

The joint cost should be allocated based on the relative sales value of each grade of lumber. The sales value of each grade is:Structural: 25,000 bd ft x $1,350/1,000 bd ft = $33,750No. 1 Common: 75,000 bd ft x $750/1,000 bd ft = $56,250No. 2 Common: 100,000 bd ft x $300/1,000 bd ft = $30,000The total sales value of all grades is $33,750 + $56,250 + $30,000 = $120,000.The proportion of the joint cost that should be allocated to No. 2 Common is $30,000/$120,000 = 1/4.Therefore, the amount of the $70,000 joint cost that should be allocated to No. 2 Common is $70,000 x 1/4 = $17,500.

A Sawmill Paid $70,000 for Logs That Produced 200,000 Board