If university printers outsources the personnel department functions, what is the maximum they can pay an outside vendor without increasing total costs

$27,600

Explanation:

The maximum amount that the university should pay must be equal to the variable costs of the personnel department. The department's total costs are $35,500 and the variable costs are $22,000 and the avoidable fixed costs are $5,600, so as long as the university pays up to $27,600 (= $22,000 + $5,600) to the outside vendor, then it will not have increased its total costs.

The fixed non-avoidable costs = $35,500 - $22,000 - $5,600 = $7,900 will remain regardless of what decision is made. If the university pays more than the variable costs and avoidable fixed costs, e.g. $28,000, then total costs would be $36,900 which results in a $400 increase.

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