common costs wright inc and brown inc are two small 267567

Common costs. Wright Inc. and Brown Inc. are two small clothing companies that are considering leasing a dyeing machine together. The companies estimated that in order to meet production, Wright needs the machine for 800 hours and Brown needs it for 200 hours. If each company rents the machine on its own, the fee will be $50 per hour of usage. If they rent the machine together, the fee will decrease to $42 per hour of usage.

Required

1. Calculate Wright’s and Brown’s respective share of fees under the stand alone cost allocation method.

2. Calculate Wright’s and Brown’s respective share of fees using the incremental cost allocation method.

Assume Wright to be the primary party.

3. Calculate Wright’s and Brown’s respective share of fees using the Shapley value method.

4. Which method would you recommend Wright and Brown use to share the fees?