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velikii [3]
3 years ago
9

Allocation of common costs. Evan and Brett are students at Berkeley College. They share an apartment that is owned by Brett. Bre

tt is considering subscribing to an Internet provider that has the following packages available:
Package Per Month
A. Internet access............................................... $75
B. Phone services............................................... 25
C. Internet access + phone services................. 90

Evan spends most of his time on the Internet ("everything can be found online now"). Brett prefers to spend his time talking on the phone rather than using the Internet ("going online is a waste of time"). They agree that the purchase of the $90 total package is a "win—win" situation.

1. Allocate the $90 between Evan and Brett using (a) the stand-alone cost-allocation method, (b) the incremental cost- allocation method, and (c) the Shapley value method.
2. Which method would you recommend they use and why?
Business
1 answer:
dedylja [7]3 years ago
4 0

Answer:

1. Evan Brett

Stand-alone $67.50 $22.50

Incremental (Brett primary)$65.00 $25.00

Incremental (Evan primary) $75.00 $15.00

Shapley value $70.00 $20.00

2.The Shapley value approach is recommended.

Explanation:

Evan Brett

Stand-alone $67.50 $22.50

Incremental (Brett primary)$65.00 $25.00

Incremental (Evan primary) $75.00 $15.00

Shapley value $70.00 $20.00

a. Stand-alone cost allocation method.

Evan: $75/$75 + $25×$90

=3/4 ×90

=67.50

Brett: $25/$75 + $25 ×$90

=1/4×$90 = $22.50

b. Incremental cost allocation method.

Let assume that Brett (the owner) is the primary user while Evan is the incremental user:

User Costs Allocated Cumulative Costs

Allocated

Brett $25 $25

Evan 65($90 – $25) $90

Total $90

This method may lead to some dispute over the ranking because Evan pays only$65 despite his prime interest in the more expensive Internet access package while Brett could argue that if Evan were ranked first he would have to pay $75 due to the fact he is the main Internet user. Which means Brett would only have to pay $15.

Assume Evan is the primary user and Brett is the incremental user:

User Costs Allocated Cumulative Costs

Allocated

Brett $25 $25

Evan 65($90 – $25) $90

Total $90

c. Shapley value (average over costs allocated as the primary and incremental user).

User CostsAllocated

Evan ($65 + $75) ÷2 = $70

Brett ($25 + $15) ÷2 = $20

2. The Shapley value approach is the best, therefore it is recommended because it is fairer than the incremental method due to the fact that it avoids considering one user as the primary or major user and allocating more of the common costs to that user. It also avoids disagreement about who is the primary user which is why its allocates costs in a way that is close to the costs allocated under the stand-alone method but takes a more comprehensive view of the common cost allocation problem by considering the primary and incremental users that the stand-alone method ignores.

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Answer:

e. None of the above

Explanation:

The taxable asset purchases allows the individual to increase or step up the tax basis of acquired assets so as to reflect the price of the purchases made.

If one buy an assets, then he or she wants to allocate total purchase price in a way which gives a favorable postacquisition tax results.

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The government of the United States is worried that the inflation rate is too high. What fiscal policy would the US government a
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3 years ago
Prior to being banned in 2002 by the McCain-Feingold Act, unlimited monetary contributions that were earmarked for party-buildin
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So, the correct answer is option B.

7 0
3 years ago
John Jansen, an employee of Redwood Company, had gross earnings for the month of May of $4,000, FICA taxes are 8% of gross earni
pogonyaev

Answer:

The correct answer is B) 2,880

Step I - Ascertain All Pre Tax Deductions

<em>Deduction 1 - Voluntary Deduction</em>

This is given as $5. This is the only pretax deduction given.

To obtain John Jansens net pay, first we need to establish all the other deductions.

<em />

<em>Deduction 2   -  FICA Taxes</em>.

FICA  means “Federal Insurance Contributions Act.” FICA tax is mandatorily deducted from workers' paychecks to pay for the Social Security retirements and Medicare (Hospital Insurance) benefits  for elderly Americans.

FICA Tax = 8% of Gros Earnings

Therefore FICA Tax = \frac{8  X 3995}{100}

FICA Tax = $319.60

<em>Deduction 3 - Federal Income Tax</em>

This has already been given as $ 675

<em>Deduction 4 - State Income Tax</em>

This is given as 3% of gross earnings.

That is 3995 x (3/100) or

= \frac{3 X 3995}{100}

= $119.85

Step 2 - To calculate the net pay, we need to seperate pre-tax deductions from after tax deductions.

The only pre tax item we have on the list is deduction 1 which is Voluntary deduction of $5.

Therefore Net Pay for John Jansen is ((Gross Pay Less Pretax Deductions) - Sum of other Taxes)

= [($4000 - $5) - ($319.60+$675+$119.85)

=$3,995 - $1,114.45

= $2,880.55 or $2 880 approximately.

Cheers!

6 0
3 years ago
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