Warren ltd has two production departments building a and

Reference no: EM13594520

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 $ 495,000 Building B 322,000 Maintenance 200,000 - 0.2 0.5 0.3 Cafeteria 160,000 0.8 - 0.1 0.1 Warren estimates that the variable costs in the Maintenance Department total $72,500, and in the Cafeteria variable costs total $80,000. Avoidable fixed costs in the Maintenance Department are $45,000. Required: If Warren outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs?

Reference no: EM13594520

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