Question

Trent Inc. and Vice Inc. are two small clothing companies that are considering leasing a dyeing machine together. The companies estimated that in order to meet production, Trent needs the machine for 950 hours and Vice needs it for 800 hours. If each company rents the machine on its own, the fee will be $110 per hour of usage. If they rent the machine together, the fee will decreasę to $100 per hour of usage. Calculate Trent's and Vice's respective share of fees under the stand-alone cost-allocation method.

Answer 1

To calculate the individual fees for Trent Inc. and Vice Inc. using the stand-alone cost-allocation method, multiply the hours needed by each company by the hourly rental rate. Trent's fee is $104,500 and Vice's fee is $88,000.

Step-by-step explanation:

The question involves calculating the share of fees for Trent Inc. and Vice Inc. under the stand-alone cost-allocation method for renting a dyeing machine. If Trent needs the machine for 950 hours and Vice for 800 hours at a rate of $110 per hour when rented separately, we need to calculate the total cost for each company before sharing.

Trent’s total cost when rented alone would be 950 hours × $110/hour, and Vice's total cost would be 800 hours × $110/hour. We do not need to consider the discounted rate of $100 per hour since the stand-alone cost method calculates costs for each company if they rented the machine separately.

For Trent Inc:950 hours × $110/hour = $104,500.

For Vice Inc:800 hours × $110/hour = $88,000.

Therefore, Trent's share of fees would be $104,500, and Vice's share would be $88,000 under the stand-alone cost-allocation method.