BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.     Administration Accounting Domestic International Employees   —     25     15     60   Transactions   50,000     —     10,000     40,000   Department direct costs $ 56,000   $ 21,000   $ 155,000   $ 590,000     BluStar estimates that the cost structure in its operations is as follows.     Administration Accounting Domestic International Variable costs $ 22,000   $ 5,800   $ 114,500   $ 429,000   Fixed costs   34,000     15,200     40,500     161,000   Total costs $ 56,000   $ 21,000   $ 155,000   $ 590,000   Avoidable fixed costs $ 10,000   $ 4,000   $ 18,500   $ 110,500     Required: a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs? b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs? c. If BluStar outsources both the Administration and the Accounting Departments, what is the maximum it can pay an outside vendor without increasing total costs?

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.
 

  Administration Accounting Domestic International
Employees       25     15     60  
Transactions   50,000         10,000     40,000  
Department direct costs $ 56,000   $ 21,000   $ 155,000   $ 590,000  
 

BluStar estimates that the cost structure in its operations is as follows.

 

  Administration Accounting Domestic International
Variable costs $ 22,000   $ 5,800   $ 114,500   $ 429,000  
Fixed costs   34,000     15,200     40,500     161,000  
Total costs $ 56,000   $ 21,000   $ 155,000   $ 590,000  
Avoidable fixed costs $ 10,000   $ 4,000   $ 18,500   $ 110,500  
 

Required:

a. If BluStar outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing total costs?

b. If BluStar outsources the Accounting Department, what is the maximum it can pay an outside vendor without increasing total costs?

c. If BluStar outsources both the Administration and the Accounting Departments, what is the maximum it can pay an outside vendor without increasing total costs?

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