Cygnet Sawmill manufactures two timber products from a joint milling process. The two products are mine support braces (MSB) and lengths of unseasoned commercial building timber (CBT). A standard production run incurs joint costs of $750 000 and results in 60 000 units of MSB and 90 000 lengths of CBT. Each MSB sells for $5, and each length of CBT sells for $10.
1. Calculate the amount of joint cost allocated to the CBT on a physical units basis.
2. Calculate the amount of joint cost allocated to the MSBs on a relative sales value basis.
3. Assume the commercial building timber is not marketable at split-off but must be further planed and sized at a cost of $1 000 000 per production run. During this process, 10 000 lengths are unavoidably lost; these spoiled units have no value. The remaining lengths of CBT are saleable at $25 per unit. The MSBs, although saleable immediately at the split-off point, are coated with a sticky preservative that costs $250 o00 per production run. The MSBs are then sold for $12.50 each. Using the net realisable value method, calculate the cost assigned to each length of CBT.
4 If Cygnet Sawmill chooses not to process the mine support braces beyond the split-off point, by how much would the contribution from the joint milling process increase or decrease?
5. Did you use the joint cost allocation results in answering requirement 4?