7 BluStar Company has two service departments Administration

7. BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows 25 50.000 556,000 15 10.000 22.000 155750 60 40,000 5607,000 Department direct costs BluStar estimates that the cost structure in its operations is as follows: S 5.500 $22,000 10,000 4000 $434.000 173,000 $807.000 23 500$113 500 $113.000 42 750 $155.750 s 27.000 Variable costs Fixed costs Total costs Avoidable fixed costs 56,000 Required a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) c. If BluStar outsources both the Administration and the Accounting Departments what is the maximum it can pay an outside vendor without increasing total costs?

Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part a Part b Part c Admin Account Both Avoidable Cost: Variable Cost 27000 5500 32500 Fixed Cost 10000 4000 14000 Maximum Payment 37000 9500 46500