14-29 Common costs. Ransom Inc. and Downey Inc. are two small clothing companies that are consider- ing leasing a dyeing machine together. The companies estimated that in order to meet production, Ransom needs the machine for 900 hours and Downey needs it for 600 hours. If each company rents the machine on its own, the fee will be $40 per hour of usage. If they rent the machine together, the fee will decrease to $32 per hour of usage.

Required

1. Calculate Ransoms and Downeys respective share of fees under the stand-alone cost allocation method.

2. Calculate Ransoms and Downeys respective share of fees using the incremental cost allocation method. Assume Ransom to be the primary party.

3. Which method would you recommend Ransom and Downey use to share the fees?