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Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees
Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Personnel Legal Eastern Western 0 40 10,800 0 120 5,400 40 $ 300,000 $ 160,000 $ 1,200,000 1,800 $ 790,000 Baldwin Enterprises estimates that the cost structure in its operations is as follows: Variable costs Fixed costs Personnel $150,000 200,000 Legal $ 46,000 124,000 Total costs Avoidable fixed costs $ 350,000 $ 55,000 $ 170,000 $ 25,000 Eastern $ 920,000 340,000 $ 1,260,000 $ 200,000 Western $ 565,000 235,000 $ 800,000 $ 200,000 Required: a. If Baldwin outsources the Legal Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If Baldwin outsources the Personnel Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If Baldwin outsources both the Personnel and the Legal Departments, what is the maximum it can pay an outside vendor without increasing total costs
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