Exercise 11-32 Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) ...
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Accounting
Exercise 11-32 Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5)
Warren Ltd. has two production departments, Building A and Building B, 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 June follow:
Proportion of Services Used by
Department
Direct Costs
Maintenance
Cafeteria
Building A
Building B
Building A
$
960,000
Building B
620,000
Maintenance
380,000
0.2
0.5
0.3
Cafeteria
317,500
0.8
0.1
0.1
Warren estimates that the variable costs in the Maintenance Department total $140,000, and in the Cafeteria variable costs total $164,000. Avoidable fixed costs in the Maintenance Department are $84,000.
Required:
If Warren outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs? (Do not round your fractions. Round other intermediate dollars & final answer to the nearest dollar amount.)
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