Question
Washington Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division: $140 per 100 board-feet
Washington Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division: $140 per 100 board-feet of raw lumber Finished lumber division: $160 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 $265 per 100 board-feet. Finished lumber can be sold at $310per 100 board-feet.
1. Should Washington Lumber process raw lumber into its finished form? Show your calculations.
2. Assume that internal transfers are made at 120% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interest of Washington 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 Washington Lumber as a whole? Explain.
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