The Use of Core Theory in Evaluating Joint Cost Allocation Schemes.
ABSTRACT: The problem of joint cost allocation is examined with particular emphasis on the possibility that some allocation schemes may result in divisional decisions which are suboptimal at the corporate level. Such decisions may arise whenever the marginal cost function for the allocated cost is decreasing, and the joint cost allocation scheme results in a charge to a division (or group of divisions) which exceeds the charge which that division (or group of divisions) could incur by acting independently. The theory of the core is used to establish criteria that any cost allocation scheme should meet if it is to avoid encouraging these suboptimal decisions. Four cost allocation schemes are studied and evaluated using the core criteria. It is shown that three of these schemes, including the activity level allocation scheme, satisfy the core criteria; however, a fourth scheme, which was recently proposed, is satisfactory in only certain cases.
- DOI
- 10.2308/tar-4498359
- Volume
- 52 (3)
- Pages
- 616-627
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref