Question

Use the following information for the next 2 questions Maddox, a division of Stanley 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. Variable and fixed operating costs total S100,000 and S50,000, respectively. In addition, Stanley allocates $20,000 of corporate administrative overhead to Maddox. If Maddox were to use the outside consultant, fixed operating costs would be reduced by 70% 24. The irrelevant costs in Maddox's outsourcing decision total: 25. The relevant costs in Maddox's outsourcing decision total

Maddox, a division of Stanley 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. Variable and fixed operating costs total $100,000 and $50,000, respectively. In addition, Stanley allocates $20,000 of corporate administrative overhead to Maddox. If Maddox were to use the outside consultant, fixed operating costs would be reduced by 70%.

24.The irrelevant costs in Maddox's outsourcing decision total:

25.The relevant costs in Maddox's outsourcing decision total:

Answer 1

24.Irrelevant costs are the unavoidable cost

= Fixed operating cost*30% + Allocated costs

= 50,000*30% + 20,000

= $35,000

25.Relevant costs are the avoidable costs

= 100,000+50,000*70%

= $135,000