A sawmill bought a shipment of logs for $30,000. When cut, the logs produced 750

Question

A sawmill bought a shipment of logs for $30,000. When cut, the logs produced 750,000 board feet of lumber in the following grades.

Type 1 - 240,000 bd. ft. priced to sell at $.16 per bd. ft.

Type 2 - 340,000 bd. ft. priced to sell at $.16 per bd. ft.

Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. (Do not round your intermediate calculations.)

$54,400; $54,400.

$54,400; $27,200.

$30,000; $54,400.

$7,244;$6,800.

$9,600; $13,600.

A sawmill bought a shipment of logs for $30,000. When cut, the logs produced 750,000 board feet of lumber in the following grades.

Type 1 - 240,000 bd. ft. priced to sell at $.16 per bd. ft.

Type 2 - 340,000 bd. ft. priced to sell at $.16 per bd. ft.

Explanation / Answer

If the value basis is used, the cost to be allocated are based on the values which each of the product would generate in the market on its own.

The weights for different board feet of lumber

Type 1 240,000/ 750,000 = 0.32

Type 2 340,000/ 750000 = 0.4533

Allocation of Cost = Joint Cost X Weights

Type 1 = 30000 * 0.32 = $9600

Type 2 = 30000* 0.4533 = $13600

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