Question
Warrant Ltd. has two production departments, Building A and Building B, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of June follow: Warren estimates that the variable costs in the Maintenance Department total $137,000, and in the Cateteria variable costs total $161,000. Avoidable fixed costs in the Maintenance Department are $95,000. If Warrant outsources the Maintenance Department, what is the maximum they can pay on outside vendor without increasing total costs? (Do not round your fractions, Round other intermediate dollars & final answer to the nearest dollar amount.)
Explanation / Answer
Total maintenance expense = 395,000
Variable = 161,000
Avoidable fixed cost = $ 95,000
Maximum amount that can be paid to outside vendor:
161,000 + 95,000
= $256,000
As the balance is unavoidable fixed cost
