Homework 5 instructions i help 4.00 points Problem 11-58 Reciprocal Cost Allocat

Question

Homework 5 instructions i help 4.00 points Problem 11-58 Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows Administration Accounting Domestic International 60 40,000 $605,000 Employees 25 00000 159290 10,000 159,250 Department direct costs $55,000 $23,000 BluStar estimates that the cost structure in its operations is as follows: Administration Accounting Domestic International 6,100 $112,000 $425,000 180,000 Variable costs Fixed costs Total costs Avoidable fixed costs $ 27,500 27,500 s 55,000 16,900 $23,000 47,250 $159,250 $605,000 Required: outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) Maximum amount b. If Blustar outsources the Accounting Department, what is the maximum it can pay an outside vendor w Do not round intermediate calculations.) Meximum anourt c. If BluStar outsources both the Administration and the Accounting Departments, what is the maximum it can pay an outside vendo without increasing total costs? Maximum amount References eBook & Resources Worksheet Difficulty: 3 Hard Learning Objective: 11-05 Use the reciprocal method approach for outsourcing decisions.

Explanation / Answer

Solution a Administrative department relevant cost Variable           27,500 Avoidable fixed cost           11,250 Relevant cost           38,750 This is maximum which can be paid to outside vendor without increasing total cost Solution b Accounting department relevant cost Variable              6,100 Avoidable fixed cost              4,000 Relevant cost           10,100 This is maximum which can be paid to outside vendor without increasing total cost Solution C Administrative department relevant cost           38,750 Accounting department relevant cost           10,100 Relevant cost           48,850 This is maximum which can be paid to outside vendor without increasing total cost

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