100.The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can besold to outside customers or within the company to the Construction Division. Thefollowing data have been gathered for the coming period:Lumber Division:Capacity200,000 board feetPrice per board foot$2.50Variable production cost per bd. ft.$1.25Variable selling cost per bd. ft.$0.50Construction Division:Board feet needed60,000Outside price paid per bd. ft.$2.00If the Lumber Division sells to the Construction Division, $0.35 per board foot can besaved in shipping costs.If the Lumber Division has sufficient excess capacity to fulfill the Construction Divisionsneeds, what will be the effect on the companys overall contribution margin?

a.Decrease by $30,000

b.Decrease by $24,000

c.Increase by $36,000

d.Increase by $33,500

Ans: c, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:Problem Solving/Decision Making, IMA: Business Economics22 - 24

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