Question

Sylvarboris Wood Products purchases alder logs for $90 per log. After the bark is stripped, the log is spun on a veneer cutter, which peels thin layers of wood (referred to as veneer) that are sold to furniture manufacturers for $150 per 3' x 30’ sheet of veneer. The peeled log (referred to as a peeler) is sold for $50 to companies that use the logs to construct outdoor play equipment. On average, each alder log yields one 3' x 30’ sheet of veneer and (obviously) one peeled log. The cost of processing each log into a sheet of veneer and a peeled log is $30 in addition to the $90 cost of the alder log. On average, a peeled log weighs 60 pounds and an average 3' x 30’ sheet of veneer weighs 10 pounds.

Required
a. Suppose Sylvarboris were to allocate all joint costs based on the weight of the joint products. Calculate expected profit per sheet of veneer and per peeler.
b. The profit per peeler in part a is negative. Does this imply that the company should not sell them?
c. Suppose Sylvarboris were to allocate all joint costs based on the relative sales values of the joint products. Calculate expected profit per sheet of veneer and per peeler.
d. Briefly explain why the relative sales value approach is the preferred method for allocating joint costs.



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  • CreatedSeptember 23, 2013
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