Cost Allocation Mechanism Research Articles

Cost sharing: the nondifferentiable case

We show existence and uniqueness of a cost allocation mechanism, satisfying standard axioms, on two classes of cost functions with major nondifferentiabilities. The first class consists of convex functions which exhibit nondecreasing marginal costs to scale, and the second of piecewise linear functions.

Information and strategyproofness in joint project selection

We introduce the following multi-activity public goods problem with excludables. A group of agents with limited budgets is to select a subset of new technologies to be developed. Each technology has a known cost and may provide different returns, which are private information, to the agents. Agents coordinate their activities through a central administrator. Once purchased, technologies are used freely by all contributors. Through examining information provided to the agents and the administrator, we create a bounded rationality environment and provide a strategyproof selection and cost allocation mechanism under a particular decision criterion.

Cost of congestion, operational efficiency and management accounting

In this paper, we examine the conflicts that arise when multiple users share a common facility. The conflicts could arise at three levels: (a) between the individual users and the division manager, (b) among the divisions (or different classes) that use the facility, and (c) between the divisions and the headquarters in the presence of private information. We analyze these conflicts and outline the role of cost allocation mechanisms and thereby account for congestion in each of these situations. The results of this paper demonstrate the usefulness of resolving these conflicts in an organization, and hence has direct managerial accounting implications.

Joint Cost Allocation for Multiple Lots

We consider the joint cost allocation problem that arises when several lots or resources are available to serve different products or divisions. We provide a two-phase model, wherein the first phase the optimal set of lots to be acquired is chosen and given the optimal set, and the products using each acquired lot is also determined. In the second phase, a stable full cost allocation method is developed that will not induce the divisions to form coalitions to reduce the allocated joint costs. Utilizing the optimal dual solution of the lot selection phase, we provide a joint cost allocation mechanism based on the concept of propensity to contribute and show that this allocation is also stable. If in the first phase there is a dual gap, then we show that there is no cost allocation in the core. A numerical illustration is provided.

Evaluating Suppliers’ Overhead Allocations

The practice of relying solely on a supplier's direct labor as the basis for allocating indirect costs may be questionable in many cases, as suppliers continue to automate their production systems. In this article, regression analysis is presented as a technique for evaluating the appropriateness of the indirect cost allocation mechanism used by suppliers. Detailed information about a supplier's production activities is used to systematically evaluate the indirect cost drivers, allocation rates, and their appropriateness. This analytical tool can also be used to provide information for the construction of a new indirect cost allocation mechanism for counterproposals.