Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

Administration Accounting Domestic International
Employees 25 15 60
Transactions 50,000 10,000 40,000
Department direct costs $ 60,000 $ 23,000 $ 153,250 $ 597,000

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

Administration Accounting Domestic International
Variable costs $ 25,500 $ 6,600 $ 113,000 $ 426,000
Fixed costs 34,500 16,400 40,250 171,000
Total costs $ 60,000 $ 23,000 $ 153,250 $ 597,000
Avoidable fixed costs $ 10,250 $ 4,200 $ 23,000 $ 111,500

. 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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Libby, Short

6th Edition

978-0071284714, 9780077300333, 71284710, 77300335, 978-0073526881

More Books

Students also viewed these Accounting questions