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Exercise 11-39 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Department Machining Assembly Maintenance Cafeteria Direct Costs $150,000 65,000 35,000 35,000 Proportion of Services Used by Maintenance Cafeteria Machining Assembly Maximum Amount 0.8 0.2 0.5 0.1 0.3 0.1 Caro estimates that the variable costs in the Maintenance Department total $11,000, and in the Cafeteria variable costs total $19,000. Avoidable fixed costs in the Maintenance Department are $8,000. Required: If Caro outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)

Exercise 11-39 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Department Machining Assembly Maintenance Cafeteria Direct Costs $150,000 65,000 35,000 35,000 Proportion of Services Used by Maintenance Cafeteria Machining Assembly Maximum Amount 0.8 0.2 0.5 0.1 0.3 0.1 Caro estimates that the variable costs in the Maintenance Department total $11,000, and in the Cafeteria variable costs total $19,000. Avoidable fixed costs in the Maintenance Department are $8,000. Required: If Caro outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Exercise 11-39 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Department Machining Assembly Maintenance Cafeteria Direct Costs $150,000 65,000 35,000 35,000 Proportion of Services Used by Maintenance Cafeteria Machining Assembly Maximum Amount 0.8 0.2 0.5 0.1 0.3 0.1 Caro estimates that the variable costs in the Maintenance Department total $11,000, and in the Cafeteria variable costs total $19,000. Avoidable fixed costs in the Maintenance Department are $8,000. Required: If Caro outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)
Transcribed Image Text:Exercise 11-39 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Department Machining Assembly Maintenance Cafeteria Direct Costs $150,000 65,000 35,000 35,000 Proportion of Services Used by Maintenance Cafeteria Machining Assembly Maximum Amount 0.8 0.2 0.5 0.1 0.3 0.1 Caro estimates that the variable costs in the Maintenance Department total $11,000, and in the Cafeteria variable costs total $19,000. Avoidable fixed costs in the Maintenance Department are $8,000. Required: If Caro outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)
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