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Kirby Industries is considering the possibility of outsourcing the activities of service department S1. In order to evaluate the bids from qualified vendors, Kirbys accountant

Kirby Industries is considering the possibility of outsourcing the activities of service department S1. In order to evaluate the bids from qualified vendors, Kirbys accountant provides the following revised data that reflect only the variable costs incurred.

Percent allocable to

Variable Cost Incurred Service Department S1 S2 P1 P2 P3
$300,000 S1 0% 30% 30% 40% 10%
104,000 S2 40% 20% 20% 15% 25%

The avoidable fixed costs of running service department S1 are estimated to be $390,000.

Required:

Determine the possible cost savings from eliminating service department S1.

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