University Printers has two service departments (Maintenance and Personnel) and
ID: 2759815 • Letter: U
Question
University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: University Printers estimates that the variable costs in the Personnel Department total $22,000 and in the Maintenance Department variable costs total $7,600. Avoidable fixed costs in the Personnel Department are $5,600. Required: If University Printers outsources the Personnel Department functions, what is the maximum they can pay an outside vendor without increasing total costs?Explanation / Answer
Personal Departments direct cost $ 35,500
Total variable cost of personal departmemt $ 22,000
Total fixed cost of personal department = $ 35,500 - $ 22,000 = $ 13,500
Avoidable fixed cost in personal department $ 5,600
Then unavoidable fixed cost in personal department is $ 13,500 - $ 5,600 = $ 7,900
if university printers outsources the personnel department function, the maximum they can pay outside vendor is the direct cost associated to the personal department which in not unavoidable, for this we have to do incremental analysis
Total variable cost of personal departmemt $ 22,000
Avoidable fixed cost in personal department $ 5,600
Total $ 27,600
the maximum they can pay to outside vender is $ 27,600 otherwise doing it in-house is more profitable
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.