Question

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:

	Maintenance			Personnel			Printing			Developing
Machine-hours		—			1,000			1,000			3,000
Labor-hours		500			—			500			2,000
Department direct costs	$	14,500		$	35,500		$	47,350		$	32,000

University Printers estimates that the variable costs in the Personnel Department total $16,000 and in the Maintenance Department variable costs total $8,500. Avoidable fixed costs in the Personnel Department are $5,200.

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

MAXIMUM AMOUNT?

Answer 1

If you like my explanation, please give a "Thumbs up"

Final answers are marked in yellow.

$22,900 is the correct answer.

For calculation ref: