Cost-Accounting-Decision-making -v2

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Cost-Accounting-Decision-making -v2 Powered By Docstoc
					              Sub: Accounts                                                                     Topic: Cost Accounting

              Question:

              Decision making as to process further or sale out.

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              Sonimad Sawmill manufactures two lumber products from a joint milling process. The two
              products developed are mine support braces (MSBs) 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 unprocessed unit of MSB sells for $2 per unit and
              each unprocessed unit of CBL sells for $4 per unit.

              If the CBL is processed further at a cost of $200,000, it can be sold at $10 per unit but 10,000
              units are unavoidably lost (with no discernible value). The MSB units can be coated with a
              preservative at a cost of $100,000 per production run and then sold for $3.50 each.

                   a) If no further work is done after the initial milling process, calculate the cost of CBL using
                      physical quantities to allocate the joint cost.

                   b) If no further work is done after the initial milling process, calculate the cost of MSB using
                      relative sales value to allocate the joint cost.

                   c) Should MSB and CBL be processed further or sold immediately after in
				
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Description: Decision making as to process further or sale out.
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