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Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information Technology (IT), and Transactions. For the last period, the following
Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information Technology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded:
Supplying Department | Using Department | ||||
---|---|---|---|---|---|
Transactions | IT | Operations | Retail | Commercial | |
Transactions | 0% | 0% | 0% | 70% | 30% |
IT | 10% | 0% | 30% | 30% | 30% |
Operations | 70% | 0% | 0% | 10% | 20% |
Direct cost | $ 310,000 | $ 730,000 | $ 1,570,000 | $ 3,770,000 | $ 2,320,000 |
The cost accountant at Dunedin Bank estimates that the cost structures in its departments are as follows:
Transactions | IT | Operations | Retail | Commercial | |
---|---|---|---|---|---|
Variable costs | $194,000 | $ 395,000 | $ 515,000 | $ 1,640,000 | $ 1,114,000 |
Fixed costs | 116,000 | 335,000 | 1,055,000 | 2,130,000 | 1,206,000 |
Total costs | $ 310,000 | $ 730,000 | $ 1,570,000 | $ 3,770,000 | $ 2,320,000 |
Avoidable fixed costs | $ 19,400 | $ 254,000 | $ 890,000 | $ 1,650,000 | $ 755,000 |
Required:
- If Dunedin Bank outsources the Transactions Department, what is the maximum it can pay an outside vendor without increasing total costs?
- If Dunedin Bank outsources the IT Department, what is the maximum it can pay an outside vendor without increasing total costs?
- If Dunedin Bank outsources the Operations Department, what is the maximum it can pay an outside vendor without increasing total costs?
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