#39

The Lumber Division of Sunland Company produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period:

Lumber Division:
Capacity	280000 board feet
Price per board foot	$4.50
Variable production cost per bd. ft.	$1.25
Variable selling cost per bd. ft.	$0.50
Construction Division:
Board feet needed	50000
Outside price paid per bd. ft.	$4

If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. If the Lumber Division has sufficient excess capacity to fulfill the Construction Divisions needs, what will be the effect on the companys overall contribution margin?

Increase by $130000

Increase by $27500

Decrease by $25000

Decrease by $120000