Question

Boise, a division of Price Enterprises, currently performs computer services for various departments of the firm. One of the services has created a number of operating problems, and management is exploring whether to outsource the service to a consultant. Traceable variable and fixed operating costs total $89,000 and $34,000, respectively, in addition to $27,000 of corporate administrative overhead allocated from Price. If Boise were to use the outside consultant, fixed operating costs would be reduced by 60%. The irrelevant costs in Boise’s outsourcing decision total:

Answer 1

Answer:

$40,600

Explanation:

The irrelevant costs in Boise’s outsourcing decision total:

= Corporate administrative overhead allocated from Stanley + Fixed operating cost does not reduce

= $27,000 + [$34,000 × (1 - 60%)]

= $27,000 + [$34,000 × (1 - 0.60)]

= $27,000 + [$34,000 × (0.40)]

= $27,000 + $13,600

= $40,600

Therefore, the above is the irrelevant cost.