Question
In: Accounting
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows.
| Administration | Accounting | Domestic | International | |||||||||
| Employees | — | 25 | 15 | 60 | ||||||||
| Transactions | 50,000 | — | 10,000 | 40,000 | ||||||||
| Department direct costs | $ | 58,000 | $ | 24,500 | $ | 159,750 | $ | 597,000 | ||||
BluStar estimates that the cost structure in its operations is as
follows.
| Administration | Accounting | Domestic | International | |||||||||
| Variable costs | $ | 25,500 | $ | 6,600 | $ | 113,000 | $ | 435,000 | ||||
| Fixed costs | 32,500 | 17,900 | 46,750 | 162,000 | ||||||||
| Total costs | $ | 58,000 | $ | 24,500 | $ | 159,750 | $ | 597,000 | ||||
| Avoidable fixed costs | $ | 11,000 | $ | 3,600 | $ | 22,500 | $ | 114,000 | ||||
Required:
a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs?
b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs?
Solutions
Expert Solution
Answer a.
If Blustar outsources administration department, it can pay a maximum of $ 36,500.
Explanation:
Administration department has the variable costs of $ 25,500 and fixed costs of $ 32,500 (out of which $ 11,000 are avoidable and $ 21,500 are unavoidable). If this department is outsourced, variable costs will not be incurred and also avoidable fixed costs will be avoided.
Hence, total amount that can be paid is $ 25,500 + $ 11,000 = $ 36,500.
Answer b.
If Blustar outsources accounting department, it can pay a maximum of $ 10,500.
Explanation:
Accounting department has the variable costs of $ 6,900 and fixed costs of $ 17,900 (out of which $ 3,600 are avoidable and $ 14,300 are unavoidable). If this department is outsourced, variable costs will not be incurred and also avoidable fixed costs will be avoided.
Hence, total amount that can be paid is $ 6,900 + $ 3,600 = $ 10,500.
In case of any doubt or clarification, you're welcome to come back via comments.
ekkarill92 answered 2 years agoRelated Solutions
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows.
Administration
Accounting
Domestic
International
Employees
–
21
46
33
Transactions
35,000
–
18,000
72,000
Department
direct costs
$
361,000
$
142,000
$
950,000
$
3,680,000
Required:
a. Allocate the cost of the service departments
to the operating...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations follows:
Administration Accounting Domestic International Employees – 28 36
36 Transactions 38,000 – 20,000 80,000 Department direct costs $
363,000 $ 141,000 $ 955,000 $ 3,750,000
Allocate the cost of the service departments to the operating
departments using...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows.
Administration Accounting Domestic
International
Employees – 30 40 30
Transactions 36,000 – 19,000 76,000
Dept direct costs $ 359,000 $ 146,000 $ 930,000
$ 3,720,000
Required:c. Allocate the cost of...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows.
Administration
Accounting
Domestic
International
Employees
–
29
49
22
Transactions
36,000
–
19,000
76,000
Department direct costs
$
357,000
$
147,000
$
945,000
$
3,650,000
Required:
a. Allocate the cost of the service departments
to the operating...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows:
Administration
Accounting
Domestic
International
Employees
–
26
49
25
Transactions
30,000
–
23,000
92,000
Department direct costs
$
351,000
$
146,000
$
945,000
$
3,680,000
Required:
a. Allocate the cost of the service departments
to the operating...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows.
Administration
Accounting
Domestic
International
Employees
–
28
51
21
Transactions
32,000
–
19,000
76,000
Department direct costs
$
358,000
$
149,000
$
935,000
$
3,560,000
Required:
a. Allocate the cost of the service departments
to the operating...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows:
Administration
Accounting
Domestic
International
Employees
—
25
15
60
Transactions
50,000
—
10,000
40,000
Department direct costs
$
54,000
$
26,500
$
159,250
$
596,000
BluStar estimates that the cost structure in its operations is as
follows:...
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....
BluStar Company has two service departments, Administration and
Accounting, and two operating departments, Domestic and
International. Administration costs are allocated on the basis of
employees, and Accounting costs are allocated on the basis of
number of transactions. A summary of BluStar operations
follows:
Administration
Accounting
Domestic
International
Employees
–
21
44
35
Transactions
34,000
–
19,000
76,000
Department direct costs
$
359,000
$
144,000
$
935,000
$
3,780,000
Required:
a. Allocate the cost of the service departments
to the operating...
Andy Corp. has two service departments and two operating departments. The company allocates service departmental costs...
Andy Corp. has two service departments and two operating
departments. The company allocates service departmental costs to
operating departments using the step-down method. Operating data
for these departments for last year are as follows: Service
Departments Operating Departments Personnel Maintenance Assembly
Machining Departmental costs $144,000 $84,000 $12,000 $34,000
Number of employees 35 30 90 60 Machine-hours 0 0 330 170 Personnel
costs are allocated first on the basis of number of employees and
Maintenance costs are allocated second on the...
Andy Corp. has two service departments and two operating departments. The company allocates service departmental costs...
Andy Corp. has two service departments and two operating
departments. The company allocates service departmental costs to
operating departments using the step-down method. Operating data
for these departments for last year are as follows:
Service Departments
Operating Departments
Personnel
Maintenance
Assembly
Machining
Departmental costs
$144,000
$84,000
$12,000
$34,000
Number of employees
35
30
90
60
Machine-hours
0
0
210
290
Personnel costs are allocated first on the basis of number of
employees and Maintenance costs are allocated second on the...
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