Chapter 11, Problem 60P

 Reciprocal Cost Allocation—Outsourcing a Service Department

 Refer to the facts in Problem 11-59.

Required

1. a.      If GECU outsources both the Processing Department and the Administration Department, the total savings (before considering the fee paid to the outside vendor) will be:
   1. (1) More than the sum of the savings calculated in Problem 11 -59 (a) and (b).
   2. (2) Less than the sum of the savings calculated in Problem 11-59 (a) and (b).
   3. (3) Equal to the sum of the savings calculated in Problem 11-59 (a) and (b).
   4. (4) Less than or equal to the savings calculated in Problem 11-59 (a) and (b).
   5. (5) Cannot determine from the information provided.
2. b.      In general (not limited to GECU), if a firm is considering eliminating more than one service department, the savings will be:
   1. (1) More than the sum of the savings calculated from eliminating each of the individual service departments.
   2. (2) Less than the sum of the savings calculated from eliminating each of the individual service departments.
   3. (3) Equal to the sum of the savings calculated from eliminating each of the individual service departments.
   4. (4) Less than or equal to the sum of the savings calculated from eliminating each of the individual service departments.
   5. (5) Cannot determine from the information provided.