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. Administration Accounting Domestic International Employees Transactions 25 15 60 50,000 10,000 40,000 Department direct costs $59,000 $23,000 $153,500 $601,000 BluStar estimates that the cost structure in its operations is as follows. AdministrationAccounting Domestic International $ 5,600 17,400 Variable costs $27,000 $110,000 $433,000 Fixed costs 32,000 43,500 168,000 Total costs $59,000 $23,000 $153,500 $601,000 Avoidable fixed costs $10,000 $ 4,600 $ 21,500 $113,500 Required: a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs? 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? Complete this question by entering your answers in the tabs below.
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. Administration Accounting Domestic International Employees Transactions 25 15 60 50,000 10,000 40,000 Department direct costs $59,000 $23,000 $153,500 $601,000 BluStar estimates that the cost structure in its operations is as follows. AdministrationAccounting Domestic International $ 5,600 17,400 Variable costs $27,000 $110,000 $433,000 Fixed costs 32,000 43,500 168,000 Total costs $59,000 $23,000 $153,500 $601,000 Avoidable fixed costs $10,000 $ 4,600 $ 21,500 $113,500 Required: a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs? 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? Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:nent and Allocation Assignment 1
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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.
Administration Accounting Domestic International
Employees
Transactions
25
15
60
50,000
10,000
40,000
Department
direct costs
$59,000
$23,000
$153,500
$601,000
BluStar estimates that the cost structure in its operations is as follows.
Variable costs
Fixed costs
AdministrationAccounting Domestic International
$ 5,600
17,400
$27,000
32,000
$110,000
43,500
$433,000
168,000
Total costs
$59,000
$23,000
$153,500
$601,000
Avoidable
fixed costs
$10,000
$4,600
$ 21,500
$113,500
Required:
a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total
costs?
b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs?
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?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
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.)
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