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| Sonimad Sawmill Inc. (SSI) purchases logs from independent timber contractors and processes the logs into the following three types of lumber products. Studs for residential building (e.g., walls, ceilings). Decorative pieces (e.g., fireplace mantels, beams for cathedral ceilings). Posts used as support braces (e.g., mine support braces, braces for exterior fences around ranch properties). These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log. The joint process results in the following costs and output of products for a typical month.  The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $100,000 per month and normally results in a loss of 10% of the units entering the process. Without this planning and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit. A. Based on the information given for Sonimad Sawmill Inc., allocate the joint processing costs of $1,000,000 to each of the three product lines using the 1. relative sales value method at split-off. 2. physical output (volume) method at split-off. 3. estimated net realizable value method. Page 10 B. Prepare an analysis for Sonimad Sawmill Inc. to compare processing the decorative pieces further as they presently do, with selling the rough-cut product immediately at split-off and recommend which action the company should take. Be sure to provide all calculations. |