Question

Chapter 11 Homework i Saved 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. 0.76 points The following data appear in the company records for the current period: Skipped Maintenance Personnel 1,000 Machine-hours Labor-hours Department direct costs 500 $16,000 Printing 1,000 500 $44,900 Developing 3,000 2,000 $32,000 $37,000 eBook Print References University Printers estimates that the variable costs in the Personnel Department total $20,500 and in the Maintenance Department variable costs total $8,800. 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.) Maximum Amount

Answer 1

Maximum amount can be paid to outside vendor will be equal to avoidable cost of personnel department.
Avoidable cost includes variable cost and avoidable fixed cost.
Variable cost	$20,500
Maintenance departments saved cost	$1,760
Avoidable fixed cost	$5,800
Maximum Amount	$28,060
Variable cost of the maintenance department = $8400	$8,800
Per hour variable cost of the maintenance department= $8800/5000 hours (Total machine hours)	$1.76
Variable cost assigned to personnel department = 1.76 * 1000	$1,760