Chapter 11, Problem 58P

Reciprocal Cost Allocation—Outsourcing a Service Department

 Refer to the facts in Problem 11-49. BluStar estimates that the cost structure in its operations is as follows:

Required

1. a.      If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs?
2. b.      If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs?
3. 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? (Hint: Stop and think before solving any equations.)