ABC Lumber has2divisions; a raw lumber division and a finished lumber division.

The variable costs are:

Raw lumber division: $750 per pallet of raw lumber

Finished lumber division: $250 per pallet of finished lumber.

Assume no lost in processing raw lumber into finished lumber. Raw lumber can be sold at $900 per pallet. Finished lumber can be sold at $1,250 per pallet.

1. Should ABC process raw lumber into finished lumber? Show your calculations.

2. Assume internal transfers are made at 125% of variable costs.Calculate divisional income.

3. Assume internal transfers are made at market price. Calculate divisional income.

4. If divisional managers get 12% bonus on divisional income, which manager will behappier with a 125% of variable cost transfer price?

5. What is the total bonus for both divisions?

Assume for bonuses that figures represent thousands.