Sonimad Sawmill, Inc., purchases logs from independent timber contractors and processes them into the following three types

Question:

Sonimad Sawmill, Inc., purchases logs from independent timber contractors and processes them into the following three types of lumber products.

1. Studs for residential construction (e.g., walls and ceilings)

2. Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings)

3. Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties)

These products are the result of a joint sawmill process that involves removing 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 during a typical month:

Joint production costs

Materials (rough timber logs) ......... $ 500,000

Debarking (labor and overhead) ........ 50,000

Sizing (labor and overhead) ......... 200,000

Product cutting (labor and overhead) ....... 250,000

Total joint costs ..............$1,000,000

Product yield and average sales value on a per-unit basis from the joint process are as follows:

Sonimad Sawmill, Inc., purchases logs from independent timber co

The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by Sonimad Sawmill. Also, the posts require no further processing. The decorative pieces can be sold immediately after emerging from the sawmill, or can be planed and further sized. This additional processing would cost the sawmill $100,000 per month and normally results in a loss of 10 percent of the units entering the process. The fully processed decorative pieces can sell at an average of $100 per unit.

Required:
1. 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:
a. Relative sales-value-at-split-off method
b. Physical units method at split-off
c. Estimated net realizable value method
2. Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further, with selling the rough-cut decorative pieces immediately at split-off. Be sure to provide all calculations. (CMAadapted)