Standard Aluminum Company is planning to lease CNC equipment for its production and finishing departments. Currently, the production and finishing departments lease the equipment separately and pay $410,000 and $360,000, respectively, as lease charges. If both the departments lease the equipment jointly, the contract will be reduced by $100,000. The managers of the finishing department want to know the cost that will be allocated to them under the stand-alone cost-allocation method. What will be the cost allocated to the finishing department?

$313,247

Explanation:

Independent lease cost :

Production department = $410,000

Finishing department = $360,000

Joint lease cost = $(410,000 + 360,000) - $100,000 = $670,000

Using the standard alone cost allocation method ;

Finishing department percentage is given by;

Finishing department independent cost ÷ (finishing department independent cost + production department independent cost)

$360,000 ÷ ($360,000 + $410,000)

$360,000 ÷ $770,000

0.4675324467 = 46.75324467%

Therefore, finishing department share of the joint lease cost will be ;

0.4675324467 × $670,000 = $313,246. 73

$313,247

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