Exercise 11-36 Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5)

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each.

The following data appear in the company records for the current period:

	Maintenance	Personnel	Printing	Developing
Machine-hours	-----	1,000	1,000	3,000
Labour-hours	500	-----	500	2,000
Department direct costs	5,000	12,000	15,000	10,000

University Printers estimates that the variable costs in the Personnel Department total $7,000 and in the Maintenance Department variable costs total $3,000. Avoidable fixed costs in the Personnel Department are $4,000.

Required: If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs?