i want to ask this 2 questions please... Number 61 and 62. The answer is provide
ID: 2541259 • Letter: I
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i want to ask this 2 questions please... Number 61 and 62. The answer is provided there, but can you explain it please.. Thank you :)
60. Under the incremental method of allocating common costs the parties are interested in being viewed as primary users. each party bears a proportionate share of the total costs in relation to their individual stand-alone costs fairness and equity are emphasized a. d. there is a disincentive to be titled the primary user. Answer: d Difficulty: 3 Objective: 4 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 61 AND 62. The Sturgeon Bay Corporation currently utilizes a manufacturing facility costing $400,000 per year; 80% ofthe facility's capacity is currently being used. A start-up business has proposed a plan that would utilize the other 20% of the facility and increase the overall costs ofmaintaining the space by 5%. 61. If the stand-alone method were used, what amount of cost would be allocated to the start-up business? a. $20,000 b. $100,000 c. $80,000 d. $84,000 Answer:d $400,000 x 1.05 = $420,000; Difficulty: 2 $420,000 x.2= $84,000 Objective: 4 If the incremental method were used, what amount of cost would be allocated to the start-up business? 62. a. $20,000 b. $100,000 c. $80,000 d. $84,000 Answer: a $400,000 x 0.05 Difficulty: 2 Objective: 4 $20,000 Chapter 15 Page 14Explanation / Answer
In the given Problem, on starting up the start up business, the cost is increasing by 5% i.e it becomes 400000 * 1.05 = $120,000.
In question number 61, the new cost of facilities is allocated as per the use the existing business and the statup is using. Thus 80% of the cost will be allocated to Existing business and the rest 20% is allocated to Startup business. Amout allocated is = 420000 * 20% = $84,000.
In Question 62, Incremental method is used and thus in this case the cost which is incurred in increment from the existing cost is allocated to the startup business. The eisting costs were $400000 when Startup business was not there. When the start up business was started, the incremental cost is 5% ie. (400000*0.05) = $20,000. Thus under incremental method the relevent increase in cost is allocated.
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