Problem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Great Eastern Credit Union...

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Problem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded. Supplying Using Department Department Processing Administration Maintenance Branches Electronic Processing 0 50% 0 10% 40% Administration 0 Maintenance Direct cost 10% 0 20% 0 60% 40% 0 20% 50% $86,000 $590,000 $256,000 $4,400,000 $2,350,000 The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows. Processing Administration Maintenance Variable costs $60,000 $153,000 $133,000 Branches $1,800,000 Fixed costs 26,000 437,000 Total costs $86,000 $590,000 123,000 $256,000 2,600,000 Electronic $1,250,000 1,100,000 $4,400,000 $2,350,000 Avoidable fixed costs $ 8,000 $276,000 $ 84,000 $ 670,000 $ 630,000 Required: a. If GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? Maximum Amount a. Processing Department b. Administration Department C. Maintenance Department Problem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded. Supplying Using Department Department Processing Administration Maintenance Branches Electronic Processing 0 50% 0 10% 40% Administration 0 Maintenance Direct cost 10% 0 20% 0 60% 40% 0 20% 50% $86,000 $590,000 $256,000 $4,400,000 $2,350,000 The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows. Processing Administration Maintenance Variable costs $60,000 $153,000 $133,000 Branches $1,800,000 Fixed costs 26,000 437,000 Total costs $86,000 $590,000 123,000 $256,000 2,600,000 Electronic $1,250,000 1,100,000 $4,400,000 $2,350,000 Avoidable fixed costs $ 8,000 $276,000 $ 84,000 $ 670,000 $ 630,000 Required: a. If GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? Maximum Amount a. Processing Department b. Administration Department C. Maintenance Department

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Great Eastern Credit Union Outsourcing Analysis We can solve this problem using the reciprocal method for cost allocation Heres how to find the maximu... View the full answer