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Warren Ltd has two production deportments Building A and Building B and two service departments...

Question:

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:

Proportaion of Services Used by:

Department Direct Costs Maintenance Cafeteria Building A Building B
Building A $970,000
Building B 685,000
Maintenance 395,000 0.2 0.5 0.3
Cafeteria 305,000 0.8 0.1 0.1

Warren estimates that the variable costs in the Maintenance Department total $137.000, and in the Cafeteria variable costs total $161,000. Avoidable fixed costs in the Maintenance Department are $95.000 .


Required

If Warren outsources the max mum they can pay an outside vendor Without increasing total cost? (Do not round your fractions Round other intermediate dollars & final answer to the nearest dollar amount)

Variable Cost:

Variable cost is a cost that varies with the production level. If thge production of goods and services increases the total variable cost will also increase. If the production decreases then the total variable cost will also decrease.

Answer and Explanation:

Allocation Cost To ($)
Department From Maintenance Cafeteria Building A Building B
Service Department Cost 395,000 305,000
Maintenance (395,000) 79,000 197,500 118,500
Cafeteria - (395,000) 48,140 24,070
395,000 197,500 197,500
Total Cost - 395,000 316,000


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

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