Question

Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information Technology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded: Using Department Supplying Department Transactions IT Operations Retail Commercial Transactions 0% 0% 0% 70% 30% IT 10% 0% 40% 30% 20% Operations 60% 0% 0% 10% 30% Direct cost $ 380,000 $ 800,000 $ 1,640,000 $ 3,840,000 $ 2,390,000 The cost accountant at Dunedin Bank estimates that the cost structures in its departments are as follows: Transactions IT Operations Retail Commercial Variable costs $ 208,000 $ 430,000 $ 550,000 $ 1,780,000 $ 1,128,000 Fixed costs 172,000 370,000 1,090,000 2,060,000 1,262,000 Total costs $ 380,000 $ 800,000 $ 1,640,000 $ 3,840,000 $ 2,390,000 Avoidable fixed costs $ 20,800 $ 380,000 $ 1,240,000 $ 1,450,000 $ 790,000 Required: a. If Dunedin Bank outsources both the Transactions Department and the IT Department, the total savings (before considering the fee paid to the outside vendor) will be: O More than the sum of the savings from outsourcing the Transactions Department and IT Department. O Equal to the sum of the savings from outsourcing the Transactions Department and IT Department. O Less than the sum of the savings from outsourcing the Transactions Department and IT Department. O Less than or equal to the savings from outsourcing the Transactions Department and IT Department. O Impossible to determine from the information provided. b. In general (not limited to Dunedin Bank), if a firm is considering eliminating more than one service department, the savings will be: O Less than or equal to the sum of the savings calculated from eliminating each of the individual service departments. O Less than the sum of the savings calculated from eliminating each of the individual service departments. O Equal to the sum of the savings calculated from eliminating each of the individual service departments. O More than the sum of the savings calculated from eliminating each of the individual service departments. O Impossible to determine from the information provided.

Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information Technology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded:

Using Department
Supplying Department Transactions IT Operations Retail Commercial
Transactions 0% 0% 0% 70% 30%
IT 10% 0% 40% 30% 20%
Operations 60% 0% 0% 10% 30%
Direct cost $ 380,000 $ 800,000 $ 1,640,000 $ 3,840,000 $ 2,390,000

The cost accountant at Dunedin Bank estimates that the cost structures in its departments are as follows:

Transactions IT Operations Retail Commercial
Variable costs $ 208,000 $ 430,000 $ 550,000 $ 1,780,000 $ 1,128,000
Fixed costs 172,000 370,000 1,090,000 2,060,000 1,262,000
Total costs $ 380,000 $ 800,000 $ 1,640,000 $ 3,840,000 $ 2,390,000
Avoidable fixed costs $ 20,800 $ 380,000 $ 1,240,000 $ 1,450,000 $ 790,000

Required:

a. If Dunedin Bank outsources both the Transactions Department and the IT Department, the total savings (before considering the fee paid to the outside vendor) will be:

O More than the sum of the savings from outsourcing the Transactions Department and IT Department.
O Equal to the sum of the savings from outsourcing the Transactions Department and IT Department.
O Less than the sum of the savings from outsourcing the Transactions Department and IT Department.
O Less than or equal to the savings from outsourcing the Transactions Department and IT Department.
O Impossible to determine from the information provided.

b. In general (not limited to Dunedin Bank), if a firm is considering eliminating more than one service department, the savings will be:

O Less than or equal to the sum of the savings calculated from eliminating each of the individual service departments.
O Less than the sum of the savings calculated from eliminating each of the individual service departments.
O Equal to the sum of the savings calculated from eliminating each of the individual service departments.
O More than the sum of the savings calculated from eliminating each of the individual service departments.
O Impossible to determine from the information provided.

Dunedin Bank has two operating departments (Retail and Commercial) and three service departments: Operations, Information Technology (IT), and Transactions. For the last period, the following costs and service department usage ratios were recorded:

Using Department
Supplying Department Transactions IT Operations Retail Commercial
Transactions 0% 0% 0% 70% 30%
IT 10% 0% 40% 30% 20%
Operations 60% 0% 0% 10% 30%
Direct cost 380,000 800,000 1,640,000 3,840,000 2,390,000

The cost accountant at Dunedin Bank estimates that the cost structures in its departments are as follows:

Transactions IT Operations Retail Commercial
Variable costs 208,000 430,000 550,000 1,780,000 1,128,000
Fixed costs 172,000 370,000 1,090,000 2,060,000 1,262,000
Total costs 380,000 800,000 1,640,000 3,840,000 2,390,000
Avoidable fixed costs 20,800 380,000 1,240,000 1,450,000 790,000

Required:

a. If Dunedin Bank outsources both the Transactions Department and the IT Department, the total savings (before considering the fee paid to the outside vendor) will be:

O More than the sum of the savings from outsourcing the Transactions Department and IT Department.
O Equal to the sum of the savings from outsourcing the Transactions Department and IT Department.
O Less than the sum of the savings from outsourcing the Transactions Department and IT Department.
O Less than or equal to the savings from outsourcing the Transactions Department and IT Department.
O Impossible to determine from the information provided.

b. In general (not limited to Dunedin Bank), if a firm is considering eliminating more than one service department, the savings will be:

O Less than or equal to the sum of the savings calculated from eliminating each of the individual service departments.
O Less than the sum of the savings calculated from eliminating each of the individual service departments.
O Equal to the sum of the savings calculated from eliminating each of the individual service departments.
O More than the sum of the savings calculated from eliminating each of the individual service departments.
O Impossible to determine from the information provided.

Added by Blanca P.

Question

Please give Ace some feedback