Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded.

Supplying Department Using Department
Processing Administration Maintenance Branches Electronic
Processing 0 50 % 0 10 % 40 %
Administration 0 0 0 60 % 40 %
Maintenance 10 % 20 % 0 20 % 50 %
Direct cost $ 86,000 $ 550,000 $ 321,000 $ 4,600,000 $ 2,300,000

The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows.

Processing Administration Maintenance Branches Electronic
Variable costs $ 65,000 $ 157,000 $ 131,000 $ 1,550,000 $ 1,450,000
Fixed costs 21,000 393,000 190,000 3,050,000 850,000
Total costs $ 86,000 $ 550,000 $ 321,000 $ 4,600,000 $ 2,300,000
Avoidable fixed costs $ 6,000 $ 279,000 $ 78,000 $ 650,000 $ 690,000

Required:

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

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

c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs?

b. If GECU outsources the Administration Department, the maximum it can pay an outside vendor without increasing total costs is $513,300.

c. If GECU outsources the Maintenance Department, the maximum it can pay an outside vendor without increasing total costs is $146,300.

What is the maximum amount to pay an outside vendor without increasing total costs?

The maximum amount that a company can pay an outside vendor without increasing total costs is equal to the avoidable costs (variable and fixed).

The unavoidable fixed costs cannot be outsourced; therefore, it is irrelevant in decision-making.

Data and Calculations:

Supplying Department Using Department

Processing Administration Maintenance Branches Electronic

Processing 0 50 % 0 10 % 40 %

Administration 0 0 0 60 % 40 %

Maintenance 10 % 20 % 0 20 % 50 %

Direct cost $86,000 $550,000 $321,000 $4,600,000 $2,300,000

Cost Structures:

Processing Administration Maintenance Branches Electronic

Variable

costs $65,000 $157,000 $131,000 $1,550,000 $1,450,000

Fixed costs 21,000 393,000 190,000 3,050,000 850,000

Total costs $86,000 $550,000 $321,000 $4,600,000 $2,300,000

Avoidable

fixed costs $ 6,000 $ 279,000 $ 78,000 $ 650,000 $ 690,000

Avoidable

costs $71,000 $436,000 $209,000 $2,200,000 $2,140,000

Processing

cost (35,500) 35,500

Maintenance 20,900 41,800 (62,700)

Amount to pay an outside

vendor $56,400 $513,300 $146,300

Thus, Great Eastern Credit Union cannot outsource the unavoidable fixed costs of its service departments.

Learn more about avoidable and unavoidable costs at https://brainly.com/question/6480477

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