reciprocal cost allocation mdash outsourcing a service department refer to the facts 691193

Reciprocal Cost Allocation—Outsourcing a Service Department

Refer to the facts in Exercise 11 22. Warren estimates that the variable costs in the Maintenance Department total $145,000, and in the Cafeteria variable costs total $160,000. Avoidable fixed costs in the Maintenance Department are $90,000.

Required

If Warren outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs?

Exercise 11 22 Cost Allocation: Direct Method

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:

Required

Compute the allocation of service department costs to producing departments using the direct method.