University Printers has two service departments (Maintenance and Personnel) and
ID: 2568737 • 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 $15,250 and in the Maintenance Department variable costs total $9,100. Avoidable fixed costs in the Personnel Department are $5,100.
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.)
Maintenance Personnel Printing Developing Machine-hours — 1,000 1,000 3,000 Labor-hours 500 — 500 2,000 Department direct costs $ 14,000 $ 39,750 $ 41,400 $ 33,000Explanation / Answer
Total machine hours=5000
Personal department=1000
Ratio=1/5
Total labour hour=3000
Maintenance =500
Ratio=1/6
Total service department cost=direct cost of the service department+cost allocated to service department
Maintenance S1=$9,100+1/6*S2
Personal S2=$15,250+1/5 * S1
S2=$15,250+1/5*(9100+(1/6 ) S2)
S2=$15,250+$1820+1/30 S2
29/30 S2 =$17,070
S2=$17070×30/29
S2=$17,659
Avoidable cost from outsourcing personal=avoidable fixed cost+avoidable variable cost
=$5,100+$17,659
=$22,759
Total maximum amount=$22,759
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.