Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 31

Reciprocal Cost Allocation—Outsourcing a Service Department

Refer to the facts in Exercise 11-22. Warren estimates that the variable costs in the Maintenance Department total $145,000, and in the Cafeteria variable costs total $160,000. Avoidable fixed costs in the Maintenance Department are $90,000.

Required

If Warren outsources the Maintenance Department, what is the maximum they can pay an outside vendor without increasing total costs?