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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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