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 130% of variable cost. 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.

Managerial Accounting
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ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
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Chapter10: Evaluating Decentralized Operations
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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 130% of variable cost. 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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