Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: ■ Raw lumber division: $125 per 100 board-feet of raw lumber ■ Finished lumber division: $145 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 $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. Q. 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 Calgary Lumber as a whole? Explain.
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: ■ Raw lumber division: $125 per 100 board-feet of raw lumber ■ Finished lumber division: $145 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 $175 per 100 board-feet. Finished lumber can be sold at $345 per 100 board-feet. Q. 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 Calgary Lumber as a whole? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:
■ Raw lumber division: $125 per 100 board-feet of raw lumber
■ Finished lumber division: $145 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 $175 per 100 board-feet.
Finished lumber can be sold at $345 per 100 board-feet.
Q. 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 Calgary Lumber as a whole? Explain.
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