Question

A lumber mill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Grade Production Market Price Structural 25,000 board feet 1,350/1,000 bd. ft. No. 1 Common 75,000 board feet 750/1,000 bd. ft. No. 2 Common 100,000 board feet 300/1,000 bd. ft. Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common if the value basis is used.

Answer 1

The multiple choices:

$35,000.

$23,333.

$70,000.

$17,500.

$0.

The fourth option,$17,500 allocated cost is the correct answer.

Step-by-step explanation:

The joint cost of $70,000 can be apportioned between the logs of different grades using the sales price of each log as highlighted below:

The sales value of each =board feet*bd. ft

Structural market price =25,000*1350/1000=$33,750

No 1 common market price=75,000*750/1000=$56,250

No 2 common market price=100,000*300/1000=$30,000

Total market price $120,000

The joint cost allocated to No.2 common =market price of no.2 common /total market value*joint cost

the joint cost allocated to no.2=$30,000/$120,000*$70,000=$17,500