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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: Administration Accounting Domestic International Employees 25 15 60 Transactions 50,000 10,000 40,000 Department direct costs $57,000 $21,500 $154,750 $597,000 BluStar estimates that the cost structure in its operations is as follows: Variable costs Fixed costs Total costs Avoidable fixed costs Administration S 27.000 30,000 S 57,000 S 9,500 Accounting S 6.200 15,300 $21,500 S 3.300 Domestic $ 111,000 43,750 $154,750 $ 19,500 International $435,000 162,000 $597,000 S110,500 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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