Question

XYZ Co. is currently using 85% of a facility, costing $520,000 per year; A start-up business has proposed to utilize the other 15% and increase the overall costs by 12%. Under stand-alone method, how much would be allocated to the start-up

Answer 1

Under stand-alone method,  the amount that  would be allocated to the start-up is $87,360.

Amount allocated

Usingn this formula

Amount allocated =Costing per year × (1+ Increase in overall cost percentage)× Utilized percentage

Where:

Costing per year=$520,000

Increase in overall cost percentage=12%

Utilized percentage=15%

Let plug in the formula

Amount allocated= $520,000 x (1+.12) x 0.15  

Amount allocated= $520,000 x 1.12 x 0.15  

Amount allocated = $87,360

Therefore  the amount that  would be allocated to the start-up is $87,360.

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