Manzano Bank has two operating departments (Branches and Electronic) and three s

Question

Manzano Bank has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During November, the following costs and service department usage ratios were recorded:

The cost accountant at Manzano Bank estimates that the cost structures in their departments are as follows:

(a) If Manzano outsources the Processing Department, what is the maximum they can pay an outside vendor without increasing total costs?

If Manzano outsources the Administration Department, what is the maximum they can pay an outside vendor without increasing total costs?

If Manzano outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs?

Manzano Bank has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During November, the following costs and service department usage ratios were recorded:

Explanation / Answer

(c)

(a) If Manzano outsources the Processing Department, what is the maximum they can pay an outside vendor without increasing total costs?

Answer : $ 99,000

Working notes for the above answer is as follow

We have provided with the information as under,

Out of these cost only avoidable cost should consider and non anoidable fixed cost should not considered and that is as follow

So it can pay $ 99,000 to outsources the Processing Department,

(C)

If Manzano outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs

Answer:

$ 305000

Working notes for the above answer is as follow

We have provided with the information as under,

Out of all cost only avoidable cost should consider and non anoidable fixed cost should not considered

so the answer is $ 305,000

Processing   Variable costs 79,000   Fixed costs 45,000   Total costs 124,000   Avoidable fixed costs 20,000

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