Sonimad Sawmill Incorporated (SSI) purchases logs from independent timber contractors and processes the logs into the following three types of lumber products:
Studs for residential building (walls, ceilings).
Decorative pieces (fireplace mantels, beams for cathedral ceilings).
Posts used as support braces (mine support braces, braces for exterior fences around ranch properties).
These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending on the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log. The joint process results in the following costs and output of products for a typical month.
Joint production costs:
Materials (rough timber logs)
Debarking (labor and overhead)
Sizing (labor and overhead)
Product cutting (labor and overhead)
Total joint costs
$ 500,000
50,000
200,000
250,000
$ 1,000,000
Product yield and average sales value on a per-unit basis from the joint process are as follows.
Fully Processed
Sales Price
$ 8
100
20
Product
Studs
Decorative pieces
Posts
Monthly Output
75,000
5,000
20,000
The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $100,000 per month and normally results in a loss of 10% of the units entering the process. l
Without this
planning and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit.