Common costs. Tate Inc. and Booth Inc. are two small manufacturing companies that are considering leasing a cutting machine together. If Tate rents the machine on its own, it will cost $26,000. If Booth rents the machine alone, it will cost $14,000. If they rent the machine together, the cost will decrease to $36,000.
1. Calculate Tate’s and Booth’s respective share of fees under the stand-alone cost-allocation method.
2. Calculate Tate’s and Booth’s respective share of fees using the incremental cost-allocation method assuming (a) Tate is the primary party and (b) Booth is the primary party.
3. Calculate Tate’s and Booth’s respective share of fees using the Shapley value method.
4. Which method would you recommend Tate and Booth use to share the fees?