The Lumber Division of Paul Bunyon Homes Inc - If the Lumber Division Sells to the Construction Division

Multiple Choice

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: $\begin{array}{ll}\text { Capacity } & 200,000 \text { board feet } \\\text { Price per board foot } & \$ 2.50 \\\text { Variable production cost per bd. ft. } & \$ 1.25 \\\text { Variable selling cost per bd. ft. } & \$ 0.50\\\text { Construction Division: }\\\text { Board feet needed } & 60,000\\\text { Outside price paid per bd. } \mathrm{ft} \text {. }&\$2.00\end{array}$
- If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs.
If current outside sales are 130,000 board feet, what is the minimum transfer price that the Lumber Division could accept?

A) $1.25
B) $1.40
C) $1.75
D) $2.50