Question

Prescott Lumber processes logs into grade A and grade B lumber. Logs cost $20,600 per load. The milling process produces 3,000 units of grade A with a market value of $64,400, and 12,000 units of grade B with a market value of $9,200. The cost of the milling process is $9,000 per load.


Required:

a. If the costs of the logs and the milling process are allocated on the basis of units of output, what cost will be assigned to each product?

b. If the costs of the logs and the milling process are allocated on the basis of the net realizable value, what cost will be assigned to each product?

c-1. How much profit or loss does the grade B lumber provide using the data in this problem and your analysis in requirement (a)?

c-2. Is it really possible to determine which product is more profitable?

Answer 1

The cost that will be assigned to each product will be $5920 and $23680.

How to calculate the cost?

From the information given, the cost to be allocated will be:

= $20600 + $9000

= $29600

The cost allocated to grade A will be:

= 3000/(3000 + 12000) × $29600

= 3000/15000 × $29600

= $5920

The cost allocated to grade B will be:

= 12000/(3000 + 12000) × $29600

= 12000/15000 × $29600

= $23680

The cost based on the net realizable value will be:

A = $29600 × 64000/73600

= $25900

B = $29600 × 12000/15000

= $23680

The loss that the grade B lumber provide will be:

= $9200 - $23680

= -$14480

Lastly, it's not ossible to determine which product is more profitable as there is a huge variance.

Learn more about cost on:

brainly.com/question/3636923

#SPJ1