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Ncrleasing.Com Essay

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Stand-alone cost-allocation method.
Wright Inc.
Brown Inc.
= (800×$50) ×(1,000×$42) (800 × $50) + (200 × $50)
= $40,000 ×$42,000 ($40, 000 + $10, 000)
= (200×$50)
(800 × $50) + (200 × $50)
= $10,000
($40, 000 + $10, 000)
= $33,600
= $ 8,400 $42,000
Cumulative Costs Allocated $40,000 $42,000
Cumulative Costs Allocated $10,000 $42,000
×(1,000×$42) ×$42,000
2. With Wright Inc. as the primary party:
Party
Party
Brown Wright Total
Costs Allocated
$40,000
2,000 ($42,000 – $40,000)
$42,000
With Brown Inc. as the primary party:
Wright Brown Total
Costs Allocated
$10,000
32,000 ($42,000 – $10,000)
$42,000
15-30
3. To use the Shapley value method, consider each party as first the primary party and then the incremental party. Compute the average of the two to determine the allocation.
Wright Inc.:
Allocation as the primary party Allocation as the incremental party Total
Allocation ($72,000 ÷ 2)
Brown Inc.:
Allocation as the primary party Allocation as the incremental party Total
Allocation ($12,000 ÷ 2)
$40,000 32,000 $72,000 $36,000
$10,000 2,000 $12,000 $ 6,000
Using this approach, Wright Inc. is allocated $36,000 and Brown, Inc. is allocated $6,000 of the total costs of $42,000.
4.
The results of the four cost-allocation methods are shown below.
Stand-alone method Incremental (Wright primary) Incremental (Brown primary) Shapley value
Wright Inc.
$33,600 40,000 32,000 36,000
Brown Inc.
$8,400 2,000 10,000
6,000
The allocations are very sensitive to the method used. With the incremental cost-allocation method, Wright Inc. and Brown Inc. would probably have disputes over who is the primary party because the primary party gets allocated all of the primary party’s costs. The stand-alone method is simple and fair since it allocates the common cost of the dyeing machine in proportion to the individual costs of leasing the machine. The Shapley values are also fair. They result in allocations that are similar to...

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Ncrleasing.Com. Anti Essays. Retrieved December 15, 2018, from the World Wide Web: http://trenmayamx.com/free-essays/Ncrleasing-Com-602846.html