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 $80,000 and $25,000, respectively, in addition to $18,000 of corporate administrative overhead allocated from Price. If Boise were to use the outside consultant, fixed operating costs would be reduced by 70%. The irrelevant costs in Boise’s outsourcing decision total

Answer 1

Answer: The irrelevant costs in Boise’s outsourcing decision is $25500

Explanation:

Given :

Traceable variable costs = $80,000

Fixed operating costs = $25,000

If Boise were to use the outside consultant, fixed operating costs would be reduced by 70%.

Now,

Irrelevant costs in Boise’s outsourcing decision = Additional corporate administrative cost + 30% reduction in traceable cost

Irrelevant costs in Boise’s outsourcing decision = $ 18000 + (30% of $25000)

Irrelevant costs in Boise’s outsourcing decision = $ 25500