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