Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded.

Required:

a. If GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total costs?

b. If GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs?

c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs?

Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded. The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows. Required: a. If GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing tota costs? c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? To determine the avoidable cost, first determine the variable cost (including the variable cost of reciprocal services for the Processing department). This is done by setting up the equations for the reciprocal method using only variable costs. This can be done as with the step method, substituting variable costs for total costs. Once the variable costs are determined, we can add the avoidable fixed costs to estimate the total avoidable cost. The cost equations can be written as follows (using variable costs only): Maintenance =$125,000 Processing =$64,000+10% Maintenance Administration =$155,000+20% Maintenance +50% Processing. Maintenance =$125,000 Processing =$64,000+10% Maintenance =$64,000+0.10$125,000 =$76,500 Administration =$155,000+0.20 Maintenance +0.50 Processing =$155,000+0.20$125,000+0.5$76,500