A lumber mill bought a shipment of logs for $40,000.When cut,the logs produced a million board feet of lumber in the following grades.Compute the cost to be allocated to Type 1 and Type 2 lumber,respectively,if the value basis is used. Type 1-400,000 bd.ft.priced to sell at $0.12 per bd.ft.
Type 2- 400,000 bd.ft.priced to sell at $0.06 per bd.ft.
Type 3- 200,000 bd.ft.priced to sell at $0.04 per bd.ft.
A)$16,000;$16,000.
B)$13,333;$4,444.
C)$40,000;$24,000.
D)$24,000;$12,000.
E)$24,000;$8,000.

Question

Quizplus · Accepted Answer

The first step is to calculate the total value of the logs based on the board feet in each type:

For Type 1: 400,000 bd.ft. x $0.12/bd.ft. = $48,000
For Type 2: 400,000 bd.ft. x $0.06/bd.ft. = $24,000
For Type 3: 200,000 bd.ft. x $0.04/bd.ft. = $8,000

Total value of logs = $48,000 + $24,000 + $8,000 = $80,000

The value basis allocation method means that the cost to be allocated to each type of lumber will be proportional to its value. So, we need to calculate the percentage of the total value that each type of lumber represents:

For Type 1: $48,000 / $80,000 = 0.6 or 60%
For Type 2: $24,000 / $80,000 = 0.3 or 30%
For Type 3: $8,000 / $80,000 = 0.1 or 10%

Now we can allocate the total cost of $40,000 based on these percentages:

For Type 1: $40,000 x 0.6 = $24,000
For Type 2: $40,000 x 0.3 = $12,000

Therefore, the cost to be allocated to Type 1 and Type 2 lumber, respectively, is $24,000 and $12,000. The answer is D.

A Lumber Mill Bought a Shipment of Logs for $40,000