British Columbia Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:

Raw lumber division: R100 per 100 m of raw lumber Finished lumber division: R125 per 100 m of finished lumber

Assume that there is no m loss in processing raw lumber into finished lumber. Raw lumber can be sold at R200 per 100 m. Finished lumber can be sold at R275 per 100 m.

Required:

2.1 Should British Columbia Lumber process raw lumber into its finished form? Show your calculations.

2.2 Assume that internal transfers are made at 110% of variable costs. Will each division maximise its division contribution by adopting the action that is in the best interest of British Columbia Lumber as a whole? Explain.

2.3 Assume that the internal transfers are made at market prices. Will each division maximise its division contribution by adopting the action that is in the best interest of British Columbia Lumber as a whole? Explain.