Reference no: EM132438326

Trouble with steps.

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 $ 12,000   $ 38,000   $ 49,100   $ 28,500  

University Printers estimates that the variable costs in the Personnel Department total $17,000 and in the Maintenance Department variable costs total $8,600. Avoidable fixed costs in the Personnel Department are $6,800.

Required:

If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs?