British Columbia Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:

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 interest 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 interest of British Columbia Lumber as a whole? Explain.