Question

British Columbia Lumber has a Raw Lumber Division and a Finished Lumber Division. The variable costs are:
◆ Raw Lumber Division: $100 per 100 board feet of raw lumber.
◆ Finished Lumber Division: $125 per 100 board feet of finished lumber.
Assume that there is no board feet loss in processing raw lumber into finished lumber.
Raw lumber can be sold at $200 per 100 board feet. Finished lumber can be sold at $275 per 100 board feet.
REQUIRED
1. Should British Columbia Lumber process raw lumber into its finished form? Show your calculations.
2. Assume that internal transfers are made at 110% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interests of British Columbia Lumber as a whole? Explain.
3. Assume that internal transfers are made at market prices. Will each division maximize its division operating-income contribution by adopting the action that is in the best interests of British Columbia Lumber as a whole? Explain.


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  • CreatedJuly 31, 2015
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