Question

Stuart Inc. is planning to lease computer equipment for its production and testing departments. Currently, the production and testing departments lease it separately and pay $231,000 and $399,000, respectively, as lease charges. If both the departments lease the equipment jointly, the contract will cost only $570,000. If the cost-allocation method ranks the individual users of a cost object in the order of users most responsible for the common cost and then uses this ranking to allocate cost among those users, Stuart, Inc. must be using the ________ cost-allocation method.

Answer 1

Incremental Cost-allocation method

Step-by-step explanation:

Incremental cost-allocation method has to do with establishing priorities among users and allocating common costs to the primary party up to the amount of that user's stand-alone costs which is shown in the case explained here.

Answer 2

INCREMENTAL cost allocation method

Step-by-step explanation:

Incremental cost allocation method is the ranking of individual users of the cost object in such a way that the order of users most responsible for the common cost and then uses its ranking to allocate cost among those users. So they'd be ranked from primary user to first incremental user to second incremental user and so on until the cost have been assigned to all users. It requires one user to be seen as the primary user/party and other users to be seen as incremental user/party.