Answered step by step
Verified Expert Solution
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 25 Employees Transactions Department direct costs Domestic 15 10,000 $157, 250 International 60 40,000 $600,000 50,000 $63,000 $21,000 BluStar estimates that the cost structure in its operations is as follows. Variable costs Fixed costs Total costs Avoidable fixed costs Administration Accounting $ 24,500 $ 6,500 38,500 14,500 $ 63,000 $21,000 $ 10,250 $ 4,700 Domestic $114,500 42,750 $157,250 $ 21,500 International $437,000 163,000 $600,000 $112,500 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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started