Question

Question 20 Answer questions 20-22 using the following information: Travis Inc. and Vesser Inc. are two small clothing companies that are considering leasing a dyeing machine together. If each company rents the machine on its​ own, it will cost $63,000 for Travis and $45,500 for Vesser. If they rent the machine​ together, the fee will decrease to $93,000. If the stand-alone method were used, what amount of cost would be allocated to Travis Inc.? Group of answer choices $54,000 $45,500 $47,500 $63,000

Question 21 If the incremental method were used, what amount of cost would be allocated to Travis Inc.? Assume Travis is ranked as the primary user. Group of answer choices $37,750 $45,500 $63,000 $47,500

Question 22 If the Shapley value method were used, what amount of cost would be allocated to Travis Inc.? Group of answer choices $55,250 $46,500 $54,250 $54,000

Answer 1

Solution:

20: If the Stand-alone method is used cost allocated to Travis Inc. will be $ 54,000.

Calculation

Independent cost / Sum of Independent cost of both companies * Combined total cost

= 63,000 / 108,500 * 93,000 = $ 54,000

21. If the incremental method was used, what amount of cost would be allocated to Travis Inc is   $ 63,000

Explanation: The basic method of allocation of incremental cost is to assign a primary user.  As Travis is primary user complete cost is charged to the primary user and the remaining amount is allocated to 1st incremental used in our case Vesser.

22. If the Shapley value method were used, what amount of cost would be allocated to Travis Inc. is

$ 55,200

Expanation: If Travis is primary user cost will be $ 63,000 & If Travis is incremental user then cost will be $ 47,500

= 63,000 + 47,500 / 2 = $ 55,250

Note similar exercise can be done for Vesser like treating 1st like primary user and 2nd time incremental user then divided by 2 in order to come up with average cost.