Joint Cost Allocation in the Sawmilling Industry: Four Methods for Estimating Raw Material Costs‪.‬

Abstract When processing a sawlog, four main product groups are produced: center boards, side boards, chips, and sawdust. In this kind of joint production it is difficult to determine raw material costs for the individual products. In this article we consider methods to allocate joint costs to sawn products in the sawmilling industry. Joint cost accounting can be used to allocate raw material costs and thus provide information that is crucial when evaluating profitability in sawmilling. Four joint cost allocation methods are presented and demonstrated. A base scenario is described resembling a typical Norwegian sawmill, and the four joint costing methods are applied to the data. Then a second scenario is introduced; we assume that the value of by-products increases and production efficiency improves and then estimate raw material costs based on the set of new assumptions. All four costing methods yield different results, and therefore the choice of costing method affects profitability for the various product groups, although the aggregate profit is not affected.