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BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees,
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: International Administration Accounting Domestic 15 Employees Transactions Department direct costs 60 50,000 $67,000 40,000 $591,000 10,000 $156,250 $29,000 BluStar estimates that the cost structure in its operations is as follows: Administration International Accounting Domestic Variable costs 44 000 152 000 Fixed costs 22.100 42.750 $67,000 $29,000 $591,000 Total costs $156,250 $ 3,200 $ 24,000 $110,500 Avoidable fixed costs 11,000 Required: a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) Maximum amount b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) Maximum amount c. If BluStar outsources both the Administration and the Accounting Departments, what is the maximum it can pay an outside vendor without increasing total costs? Maximum amount
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