University Printers has two service departments (Maintenance and Personnel) and
ID: 2335187 • 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 $21,500 and in the Maintenance Department variable costs total $9,300. Avoidable fixed costs in the Personnel Department are $5,800.
Required:
If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)
Max Amount: ?
Maintenance Personnel Printing Developing Machine-hours — 1,000 1,000 3,000 Labor-hours 500 — 500 2,000 Department direct costs $ 16,000 $ 36,500 $ 45,250 $ 32,500Explanation / Answer
The maximum it can pay an outside vendor without increasing total costs = Variable costs in the personnel department + Avoidable fixed costs in the personnel department
= $21,500 + $5,800
= $27,300
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