Manzano bank has two operating departments branches and

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Reference no: EM13578320

Manzano Bank has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During November, the following costs and service department usage ratios were recorded:

	Using Department
Supplying
Department	Processing			Administration			Maintenance		Branches			Electronic
Processing		0			50	%		0		10	%		40	%
Administration		0			0			0		60	%		40	%
Maintenance		10	%		20	%		0		20	%		50	%
Direct cost	$	125,000			$748,000			$331,000	$	6,500,000		$	2,450,000

The cost accountant at Manzano Bank estimates that the cost structures in their departments are as follows:

	Processing		Administration		Maintenance		Branches		Electronic
Variable costs	$	79,000	$	243,000	$	181,000	$	2,600,000	$	1,100,000
Fixed costs		46,000		505,000		150,000		3,900,000		1,350,000

Total costs	$	125,000	$	748,000	$	331,000	$	6,500,000	$	2,450,000

Avoidable fixed costs	$	12,000	$	410,000	$	122,000	$	2,345,000	$	900,000

Required:

(a)	If Manzano outsources the Processing Department, what is the maximum they can pay an outside vendor without increasing total costs? (Omit the "$" sign in your response.)

Maximum amount

(b)	If Manzano outsources the Administration Department, what is the maximum they can pay an outside vendor without increasing total costs? (Omit the "$" sign in your response.)

Maximum amount

(c)	If Manzano outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs? (Omit the "$" sign in your response.)

Maximum amount

Reference no: EM13578320

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