22-19 Transfer-pricing methods, goal congruence. Calgary Lumber has a raw lumber division and a fin- ished lumber division. The variable costs are as follows: Raw lumber division: $125 per 100 board-feet of raw lumber Finished lumber division: $145 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 $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. 1. Should Calgary Lumber process raw lumber into its finished form? Show your calculations. 2. Assume that internal transfers are made at 130% of variable cost. Will each division maximize its divi- sion operating-income contribution by adopting the action that is in the best interest of Calgary 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 Calgary Lumber as a whole? Explain. 22-34 Transfer pricing, goal congruence. The Croydon division of CC Industries supplies the Hauser division with 100,000 units per month of an infrared LED that Hauser uses in a remote control device it sells. The transfer price of the LED is $8, which is the market price. However, Croydon does not operate at or near capacity. The variable cost to Croydon of the LED is $4.80, while Hauser incurs variable costs (excluding the transfer price) of $12 for each remote control. Hauser's selling price is $32. Hauser's manager is considering a promotional campaign. The market research department of Hauser has developed the following estimates of additional monthly volume associated with additional monthly promotional expenses. Additional Monthly Promotional Expenses: Additional Monthly Volume (Units) $80,000 10,000 $120,000 15,000 $160,000 18,000 1. What level of additional promotional expenses would the Hauser division manager choose? 2. As the manager of the Croydon division, what level of additional promotional expenses would you like to see the Hauser division manager select? 3. As the president of CC Industries, what level of spending would you like the Hauser division manager to select? 4. What is the maximum transfer price that would induce the Hauser division to spend the optimal ad- ditional promotional expense from the standpoint of the firm as a whole?