The Maintenance Department Has Been Servicing Gizmo Production for Four

question 1

Essay

The Maintenance Department has been servicing Gizmo Production for four years. Beginning next year, the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production. As a result, maintenance costs are expected to increase from $460,000 per year to $525,000 per year. The Scrap-Processing Department will use 25% of the maintenance efforts.
Required:
a.Using the stand-alone cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
b.Using the incremental cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.

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Definitions:

Stock Price

Represents the current market value of a company’s shares, influenced by investor supply and demand.

Hedge Fund

An alternative investment fund that employs various strategies to earn active return, or alpha, for investors.

Arbitrage

The simultaneous purchase and sale of an asset to profit from a difference in the price in two different markets.

Derivatives

Financial instruments whose value is derived from the value of an underlying entity such as an asset, index, or interest rate.