John Boy Lumber cuts logs to create 2 immediate joint products, lumber and sawdu

Question

John Boy Lumber cuts logs to create 2 immediate joint products, lumber and sawdust.Unfinished lumber can be sold as is for $140 or processed further at a sales price of$270. Sawdust can be sold as is for $40 or processed further for a sales price of $50.There are joint product costs (costs up to the split off point) allocated to each of theproducts – $176 for lumber and $24 for sawdust. The cost of further processing is$40 for lumber and $20 for sawdust.

a. Should John Boy Lumber process lumber further or sell the unfinished lumber as is? Support your work with numbers.

b. Should John Boy Lumber process the sawdust further or sell it as is? Support your work with numbers.

Explanation / Answer

a.

Lumber should be sold after further processing

b.

Sawdust should be sold as it is.

If sold as it is If sold after further processing Sales price $140 $270 Less: Cost upto split off point 176 176 Less: Gurther processing cost 0 40 Net gain/(loss) (36) 54

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