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University Printers

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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Exercise 11-40 (Static) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Personnel Printing 1,000 1,000 500 $12,000 $15,000 Machine-hours Labor-hours Department direct costs Maintenance 500 $5,000 Maximum Amount Developing 3,000 2,000 $10,000 University Printers estimates that the variable costs in the Personnel Department total $7,000 and in the Maintenance Department variable costs total $3,000. Avoidable fixed costs in the Personnel Department are $4,000. Required: If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)
Transcribed Image Text:Exercise 11-40 (Static) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Personnel Printing 1,000 1,000 500 $12,000 $15,000 Machine-hours Labor-hours Department direct costs Maintenance 500 $5,000 Maximum Amount Developing 3,000 2,000 $10,000 University Printers estimates that the variable costs in the Personnel Department total $7,000 and in the Maintenance Department variable costs total $3,000. Avoidable fixed costs in the Personnel Department are $4,000. Required: If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)
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