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 Bluestar operation follows.

Administration

Accounting

Domestic

International

Employees

--

25

15

60

Transactions

50,000

---

10,000

40,000

Department direct costs

$64,000

$24,000

$154,250

$599,000

BluStar estimates that the cost structure in its operations is as follows.

administration

Accounting

Domestic

International

Variables costs

$ 26,000

$ 5,400

$ 111,000

$ 436,000

Fixed costs

38,000

18,600

43,250

163,000

Total Costs

$ 64,000

$ 24,000

$ 154,250

$ 599,000

Avoidable fixed costs

$ 11,750

$ 4,500

$23,500

$ 114,500

Required:

A.If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs?

B.If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs?

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?

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