Answer the following questions using the information below:The Cold Spring Harbor Corporation currently leases a corporate suite in an office building for a cost of$180,000 a year. Only 70% of the corporate suite is currently being used. A start-up business hasproposed a plan that would use the other 30% of the suite and increase the overall costs of maintainingthe space by $20,000.6) If the stand-alone method were used, what amount of cost would be allocated to the start-up business?A) $20,000B) $54,000C) $60,000D) $74,000
Question
Answer the following questions using the information below:The Cold Spring Harbor Corporation currently leases a corporate suite in an office building for a cost of20,000.6) If the stand-alone method were used, what amount of cost would be allocated to the start-up business?A) 54,000C) 74,000
Solution
The stand-alone method allocates costs based on the proportion of each department's usage. In this case, the start-up business would use 30% of the suite.
First, calculate the total cost of maintaining the space, which is the original cost plus the additional cost. That is 20,000 = $200,000.
Then, allocate the cost to the start-up business based on its usage. That is 30% of 60,000.
So, the answer is C) $60,000.
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