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Will each division maximize the division operating-income

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Reference no: EM132607469

Lethbridge Lumber has a raw lumber division and a finished lumber division. The following variable costs are;

a. Raw lumber division: $120 per 120 board feet raw lumber

b. Finished lumber division: $150 per 120 board feet of finished lumber.

Assume that no board feet are lost in processing raw lumber into finished lumber. Raw lumber can be sold at $200 per 100 board feet.

Required

Question 1. Should British Columbia Lumber process raw lumber into finished form? Show your calculations.

Question 2. Assume that internal transfers are made at 11% 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.

Reference no: EM132607469

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