University Printers has two service departments (Maintenance and Personnel) and
ID: 2597225 • 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: Maintenance Personnel Printing Developing Machine-hours — 1,000 1,000 3,000 Labor-hours 500 — 500 2,000 Department direct costs $ 13,000 $ 36,000 $ 43,850 $ 31,500 University Printers estimates that the variable costs in the Personnel Department total $17,250 and in the Maintenance Department variable costs total $7,700. Avoidable fixed costs in the Personnel Department are $5,700. 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.)
Explanation / Answer
Statement of distribution of followimg expenses among departments
particular common exp basis main dept personal dep printing and devolping dep
direct exp 13000 36000 75350
personal dep 17250 labour hrs 2875 2875 11500
(1:1:4)
maintance dep 7700 machine hrs 1540 1540 4620
(1:1:3)
total 17415 40415 91470
decision
total cost of personal department 40415
less : avoidable fixed cost if it is outsource (5700)
total un avoidable cost 34715
max amount it can pay to out sider with out increasing cost is 34715
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