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Should assam lumber process raw lumber into finished form

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Reference no: EM132659620

Assam Lumber has a Raw lumber Division and a Finished Lumber Division.

The variable costs are Raw Lumber Division: 1,000 per 100 board feet of raw lumber

Finished Lumber Division: 1,250 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 2,000 per 100 board feet.

Finished Lumber can be sold at 2,750 per 100 board feet.

Question 1. Should Assam Lumber process raw lumber into its finished form? Show your computations

Question 2. Assume that internal transfers are made at 110% of variable costs. Will each division maximize its division operating income contribution by adopting the action that is in the best interest of Assam Lumber? Explain. 

Question 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 Assam Lumber?

Reference no: EM132659620

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