Question: On January 1 Olsen Corporation paid the annual royalty of

On January 1, Olsen Corporation paid the annual royalty of $810,000 for rights to use patented technology to make batteries for laptop computers. Olsen plans to use the patented technology to produce five different models of batteries. Olsen uses machine hours as a common cost driver and plans to operate its machines 45,000 hours in the coming year. The company used 3,000 machine hours in June and 3,600 hours in July.

Why would Olsen need to allocate the annual royalty payment rather than simply assign it in total to January production? How much of the royalty cost should Olsen allocate to products made in June and those made in July?

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  • CreatedFebruary 07, 2014
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