BluStar Company has two service departments, Administration andAccounting, and two operating departments, Domestic andInternational....BluStar...

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Accounting

BluStar Company has two service departments, Administration andAccounting, and two operating departments, Domestic andInternational. Administration costs are allocated on the basis ofemployees, and Accounting costs are allocated on the basis ofnumber of transactions. A summary of BluStar operationsfollows:
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 asfollows:
Administration Accounting Domestic International
Variable costs $ 27,500 $ 5,500 $ 113,000 $ 432,000
Fixed costs 26,500 21,000 46,250 164,000
Total costs $ 54,000 $ 26,500 $ 159,250 $ 596,000
Avoidable fixed costs $ 11,750 $ 3,800 $ 18,000 $ 114,000

a. If BluStar outsources the AdministrationDepartment, what is the maximum it can pay an outside vendorwithout increasing total costs?
b. If BluStar outsources the AccountingDepartment, what is the maximum it can pay an outside vendorwithout increasing total costs?
c. If BluStar outsources both theAdministration and the Accounting Departments, what is the maximumit can pay an outside vendor without increasing total costs?

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In: AccountingBluStar Company has two service departments, Administration andAccounting, and two operating departments, Domestic andInternational....BluStar Company has two service departments, Administration andAccounting, and two operating departments, Domestic andInternational. Administration costs are allocated on the basis ofemployees, and Accounting costs are allocated on the basis ofnumber of transactions. A summary of BluStar operationsfollows:AdministrationAccountingDomesticInternationalEmployees—251560Transactions50,000—10,00040,000Department direct costs$54,000$26,500$159,250$596,000BluStar estimates that the cost structure in its operations is asfollows:AdministrationAccountingDomesticInternationalVariable costs$27,500$5,500$113,000$432,000Fixed costs26,50021,00046,250164,000Total costs$54,000$26,500$159,250$596,000Avoidable fixed costs$11,750$3,800$18,000$114,000a. If BluStar outsources the AdministrationDepartment, what is the maximum it can pay an outside vendorwithout increasing total costs?b. If BluStar outsources the AccountingDepartment, what is the maximum it can pay an outside vendorwithout increasing total costs?c. If BluStar outsources both theAdministration and the Accounting Departments, what is the maximumit can pay an outside vendor without increasing total costs?

	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