Lethbridge Lumber has a raw lumber division and a finished lumber division. The following variable costs are;

a. Raw lumber division: $120 per 120 board feet raw lumber

b. Finished lumber division: $150 per 120 board feet of finished lumber.

Assume that no board feet are lost in processing raw lumber into finished lumber. Raw lumber can be sold at $200 per 100 board feet.

Required

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

2. Assume that internal transfers are made at 11% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interest of British Columbia Lumber as a whole? Explain.