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TorreyPine outsourcing;Somerset fixed & IndiaCorp joint cost

1. 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?
A) $10,000.
B) $35,000.
C) $130,000.
D) $155,000.
E) None, as it would be cheaper to keep the department open.

2. Somerset Corporation is composed of five divisions, and each division is allocated a share of Somerset overhead to make divisional managers aware of the cost of running the corporate headquarters. The following information relates to the Metro Division:

If the Metro Division is closed, 100% of the traceable fixed operating costs can be eliminated. What will be the impact on Somerset's overall profitability if the Meto Division is closed?
A) Decrease by $200,000.
B) Decrease by $500,000.
C) Decrease by $2,100,000.
D) Decrease by $2,400,000.
E) None of the above.

3. India Corporation has $200,000 of joint processing costs and is studying whether to process J and K beyond the split-off point. Information about J and K follows.

If India desires to maximize total company income, what should the firm do with regard to Products J and K?
A) Entry A
B) Entry B
C) Entry C
D) Entry D
E) Entry E

Solution Preview

See attached file.

1 - Total Cost Saving = 390000+120000+30000 = $540,000

Company Benefit = 540000-410000 = $130,000

$25,000 corporate overhead is not a saving as this cost will be adjusted with other dept.

2 - Contribution by Metro Division ...

Solution Summary

The solution computes Torrey Pines outsourcing; Somerset fixed costs; India Corp joint processing costs.

$2.19