The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period:
Lumber Division:
Capacity 200,000 board feet
Price per board foot $2.50
Variable production cost per bd. ft. $1.25
Variable selling cost per bd. ft. $0.50
Construction Division:
Board feet needed 60,000
Outside price paid per bd. ft. $2.00
If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs.
If the Lumber Division has sufficient excess capacity to fulfill the Construction Division's needs, what will be the effect on the company's overall contribution margin?
a) Increase by $36,000
b) Decrease by $30,000
c) Decrease by $24,000
d) Increase by $33,500
Answer: a) Increase by $36,000
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