Jason Miller and Eric Jackson would like to lease an office building to open their separate law offices. The building has a total of 1,700 square metres of office space. Miller and Jackson need 1,000 square metres and 700 square metres, respectively. If each rents the space on his own, the rent will be $1 per square metre. If they rent the space together, the rent will decrease to $0.80 per square metre.
REQUIRED
1. Calculate Miller’s and Jackson’s respective share of the rent under the stand-alone cost- allocation method.
2. Do requirement 1 using the incremental cost allocation method. Assume Miller to be the primary party.
3. What method would you recommend Miller and Jackson use to share the rent?