Question
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
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:
Supplying Department | Using Department | ||||||||||||||||||
Processing | Administration | Maintenance | Branches | Electronic | |||||||||||||||
Processing | 0 | 50 | % | 0 | 10 | % | 40 | % | |||||||||||
Administration | 0 | 0 | 0 | 60 | % | 40 | % | ||||||||||||
Maintenance | 10 | % | 20 | % | 0 | 20 | % | 50 | % | ||||||||||
Direct cost | $ | 93,000 | $ | 560,000 | $ | 281,000 | $ | 4,250,000 | $ | 2,450,000 | |||||||||
The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows:
Processing | Administration | Maintenance | Branches | Electronic | |||||||||||||||
Variable costs | $ | 63,000 | $ | 157,000 | $ | 130,000 | $ | 1,800,000 | $ | 1,250,000 | |||||||||
Fixed costs | 30,000 | 403,000 | 151,000 | 2,450,000 | 1,200,000 | ||||||||||||||
Total costs | $ | 93,000 | $ | 560,000 | $ | 281,000 | $ | 4,250,000 | $ | 2,450,000 | |||||||||
Avoidable fixed costs | $ | 9,000 | $ | 283,000 | $ | 77,000 | $ | 690,000 | $ | 600,000 | |||||||||
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?
Thank you for your help!
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