Transfer pricing methods, goal-congruence. British Columbia Lumber has a Raw Lumber Division and a Finished Lumber Division. The variable costs are:

Raw Lumber Division: $120 per 100 board-feet ofraw lumber (a board-foot is about 2,360 cubic centimetres).

Finished Lumber Division: $150 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 $240 per 100 board-feet. Finished lumber can be sold at $330 per 100 board-feet.

Required 1. $hould British Columbia Lumber process raw lumber into its finished form?

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 interests of British Columbia Lumber?

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?