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Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Personnel Legal Eastern Western е 40 10,800 $ 300,000 120 5,400 40 $ 160,000 $ 1,200,000 1,800 $ 790,000 Variable costs Fixed costs Personnel $185,000 235,000 Total costs Avoidable fixed costs $ 420,000 $ 62,000 Baldwin Enterprises estimates that the cost structure in its operations is as follows: Eastern $ 990,000 354,000 Western $ 572,000 242,000 $ 814,000 Legal $ 53,000 131,000 $ 184,000 $ 32,000 $ 1,344,000 $ 270,000 $ 270,000 Required: a. If Baldwin outsources the Legal Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If Baldwin outsources the Personnel Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If Baldwin outsources both the Personnel and the Legal Departments, what is the maximum it can pay an outside vendor without increasing total costs?

Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Personnel Legal Eastern Western е 40 10,800 $ 300,000 120 5,400 40 $ 160,000 $ 1,200,000 1,800 $ 790,000 Variable costs Fixed costs Personnel $185,000 235,000 Total costs Avoidable fixed costs $ 420,000 $ 62,000 Baldwin Enterprises estimates that the cost structure in its operations is as follows: Eastern $ 990,000 354,000 Western $ 572,000 242,000 $ 814,000 Legal $ 53,000 131,000 $ 184,000 $ 32,000 $ 1,344,000 $ 270,000 $ 270,000 Required: a. If Baldwin outsources the Legal Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If Baldwin outsources the Personnel Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If Baldwin outsources both the Personnel and the Legal Departments, what is the maximum it can pay an outside vendor without increasing total costs?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Personnel Legal Eastern Western 0 40 10,800 $ 300,000 0 120 5,400 $ 160,000 $ 1,200,000 40 1,800 $ 790,000 Baldwin Enterprises estimates that the cost structure in its operations is as follows: Variable costs Fixed costs Personnel $185,000 235,000 Legal $ 53,000 131,000 Eastern $ 990,000 354,000 Total costs Avoidable fixed costs $ 420,000 $ 62,000 $ 184,000 $ 32,000 $ 1,344,000 $ 270,000 Western $ 572,000 242,000 $ 814,000 $ 270,000 Required: a. If Baldwin outsources the Legal Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If Baldwin outsources the Personnel Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If Baldwin outsources both the Personnel and the Legal Departments, what is the maximum it can pay an outside vendor without increasing total costs?
Transcribed Image Text:Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Personnel Legal Eastern Western 0 40 10,800 $ 300,000 0 120 5,400 $ 160,000 $ 1,200,000 40 1,800 $ 790,000 Baldwin Enterprises estimates that the cost structure in its operations is as follows: Variable costs Fixed costs Personnel $185,000 235,000 Legal $ 53,000 131,000 Eastern $ 990,000 354,000 Total costs Avoidable fixed costs $ 420,000 $ 62,000 $ 184,000 $ 32,000 $ 1,344,000 $ 270,000 Western $ 572,000 242,000 $ 814,000 $ 270,000 Required: a. If Baldwin outsources the Legal Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If Baldwin outsources the Personnel Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If Baldwin outsources both the Personnel and the Legal Departments, what is the maximum it can pay an outside vendor without increasing total costs?
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