Managerial Accounting por favorWatch
28. Torrey Pines is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, long distance) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Torrey Pines can secure needed H/R services locally for $410,000, how much would the company benefit by outsourcing?
E. None, as it would be cheaper to keep the department open.
The answer is A
30. 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. Traceable variable and fixed operating costs total $80,000 and $25,000, respectively, in addition to $18,000 of corporate administrative overhead allocated from Stanley. If Maddox were to use the outside consultant, fixed operating costs would be reduced by 70%. The irrelevant costs in Maddox's outsourcing decision total:
E. some other amount.
The answer is D
and that's why I'm confused b/c I know your not supposed to count the fixed costs so why isn't it 25,000?