Question

Hardy inc. Has two operating departments (1 and 2) and is considering renting a new machine to help automate the printing process. The normal rental for the machine is $25/hour, but for rentals that exceed 1,000 hours the rental rate drops to $22/hour. Operating dept 1 needs the machine for 300 hours. Operating dept 2 needs the machine for 900 hours. If hardy uses the stand alone method, how much of the cost will be allocated to department 1?

Answer 1

The amount of the cost will be allocated to department is $6,900

What are operating costs?

Operating costs are known to be the current or the present expenses that are often incurred from the daily running of a business. They includes selling, administrative expenses, etc.

Note that in the above, the Total rental cost allocation to department 1 are:

= (100 x $25) + (200 x $22)

So you then sum up the both amount together:

= $2,500 + $4,400 = $6,900

Therefore, the cost that needs to be allocated to Department 1 is $6,900

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