Question

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:

	Maintenance			Personnel			Printing			Developing
Machine-hours		—			1,000			1,000			3,000
Labor-hours		500			—			500			2,000
Department direct costs	$	5,000		$	12,000		$	15,000		$	10,000

University Printers estimates that the variable costs in the Personnel Department total $7,000 and in the Maintenance Department variable costs total $3,000. Avoidable fixed costs in the Personnel Department are $4,000.

Required:

If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.)

Answer 1