Question

Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are:
• Raw lumber division: $ 130 per 100 board- feet of raw lumber
• Finished lumber division: $ 155 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 $ 255 per 100 board- feet. Finished lumber can be sold at $ 330 per 100 board- feet.

Required
1. Should Calgary Lumber process raw lumber into its finished form? Show your calculations.
2. Assume that internal transfers are made at 150% of variable cost. Will each division maximize its division operating- income contribution by adopting the action that is in the best interest of Calgary 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 interest of Calgary Lumber as a whole? Explain.



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  • CreatedJanuary 15, 2015
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