reciprocal cost allocation mdash outsourcing a service department refer to the facts 691194

Reciprocal Cost Allocation—Outsourcing a Service Department

Refer to the facts in Exercise 11 24. University Printers estimates that the variable costs in the Personnel Department total $20,000 and in the Maintenance Department variable costs total $8,750. Avoidable fixed costs in the Personnel Department are $6,000. If Warren outsources the Personnel Department functions, what is the maximum they can pay an outside vendor without increasing total costs?

Exercise 11 24 Cost Allocation: Direct Method            

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:

Required

Use the direct method to allocate these service department costs to the operating departments