The variable cost saved from outsourcing the Administration Department is $28,950 (= $25,500 + $3,450). Therefore, the maximum that BluStar could pay an outside vendor without increasing costs is $37,200 (= $28,950 + $8,250 avoidable fixed costs). b. Using the same approach, the avoidable cost from outsourcing Accounting is $18,075 (= 6,900 + $6,375 + $4,800 avoidable fixed costs). Total Service Department Direct Costs of the Service Cost Allocated to the Service Costs = Department Department S1 (Administration) 25.500 + 0.50 52 $2 (Accounting) 6.900 + 0.25 51 Substituting, the first equation into the second yields, 52 = $6,900 + 0.25 ($25,500 + 0.50 $2) 52 = $6,900 + $6,375 + 0.125 S2 C. The avoidable costs from outsourcing both the Administration and Accounting Departments is $45,450 (= $13,050 avoidable fixed costs in both departments + $32,400 avoidable variable costs in both departments). You cannot add the amounts found in the reciprocal analysis, because there is double counting. For example, in requirement (a) we saved all the variable cost in Administration plus some amount of variable cost in Accounting