Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 36

Joint Product Costing

Sonimad Sawmill manufactures two lumber products from a joint milling process: mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit.

Required

1. Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial building lumber (CBL) on a physical measure method basis?

---

2. If no further processing occurs after the split-off point, how much of the joint cost is allocated to the mine support braces (MSB) on a sales value basis?

---

3. Assume that the CBL is not marketable at split-off but must be planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $10 per unit. The MSB, although salable immediately at the split-off point, are coated with a tarlike preservative that costs $100,000 per production run. The braces are then sold for $5 each. Using the net realizable value basis, how much of the completed cost should be assigned to each unit of CBL?

---

4. Should Sonimad Sawmill choose to process the MSB beyond split-off? What would be the contribution if it did so?

Step 1 of 9

Joint product costing:

Joint product is a result of a single input or single set of inputs processed in a single production process. The multiple products have substantial commercial value in comparison to each other. In joint product costing the cost is to be identified up to split-off point and it should designate a proper method for allocating such cost among 2 or more products. Further, if a specific cost is associated with a particular product it should be allocated to such product only.