Question

Gilles Georges, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days Later, he received an invitation to make a presentation to a prospective client in Denver.He decided to combine his​ visits, traveling from Atlanta to​ Seattle, Seattle to​ Denver, and Denver to Atlanta. Georges received offers for his consulting services from both companies. Upon his​ return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular​ round-trip fares with no​ stopovers:

Atlanta to Seattle $725
Atlant to Denver $525

Georges paid for $1,150 for his three-leg flight (Atlanta-Seattle, Seattle-Denver, Denver-Atlanta). In addition, he paid $80 each way ($160 total) for limousines from his home to Atlanta Airport and back when he returned.

Requirement 1

a. How should Georges allocate the $ 1,150 airfare between the clients in Seattle and Denver using the​ stand-alone cost-allocation​ method?

Stand-alone

Seattle	Denver

b. How should Georges allocate the $1,150 airfare between the clients in Seattle and Denver using the incremental​ cost-allocation method?

Incremental

	Seattle	Denver
Seattle
Denver

c. How should Georges allocate the $1,150 airfare between the clients between the clients in Seattle and Denver using the Shapley value method?

Shapely

Seattle	Denver

Requirement 2. Which method would you recommend Georges use and why?

I would recommend the _________ (incremental, shapley or standalone)
The recommended method if fairer than the ___________ (incremental, shapley or standalone) which _________ (does not name a user and allocates the common costs randomly, names a primary user and allocates a higher proportion of the common costs to that user, or names a primary user and allocates a lower proportion of the common costs to that user). The recommended method allocates costs in a manner that is close to the costs allocated under the _________ (incremental, shapley or standalone) but takes a more comprehensive view of the common cost allocation problem by considering ___________ (incremental users only, primary and incremental users, or Primary users only)

Requirement 3. How should Georges allocate the $160 limousine charges between the clients in Seattle and Denver?

A simple approach would be to ___________ (apply the stand-alone method, apply the shapley method, apply the incremental method, or split the cost equally between the two clients).

This Question: 1 pt 2 of 5 (2 complete) This Test: 5 pts possible Gilles Georges, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days later, he received an invitation to make a presentation to a prospective client in Denver. He decided to combine his visits, traveling from Atlanta to Seattle, Seattle to Denver, and Denver to Atlanta. Georges received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular round-trip fares with no stopovers: E: (Click icon to view round-trip data.) (Click the icon to view additional data.) Read the requirements. Requirement 1 a. How should Georges allocate the $1,150 airfare between the clients in Seattle and Denver using the stand-alone cost-allocation method? (Hold all decimals in intermediary calculations. Round your final answers to the nearest dollar.) Denver Stand-alone D Seattle D b. How should Georges allocate the $1,150 airfare between the clients in Seattle and Denver using the incremental cost-allocation method? Seattle Denver Incremental Seattle client primary user Denver client primary user c. How should Georges allocate the $1,150 airfare between the clients in Seattle and Denver using the Shapley value method? Denver Seattle N Shapley Requirement 2. Which method would you recommend Georges use and why? I would recommend the V which V. The recommended method allocates costs in a manner that is close to the costs allocated under the but takes a more comprehensive The recommended method is fairer than the view of the common cost allocation problem by considering Requirement 3. How should Georges allocate the $160 limousine charges between the clients in Seattle and Denver? A simple approach would be to

Answer 1

Please find below table useful to compute desired results: -

В 725 525 1150 160 Atlanta to seattle Atlanta to Denver Flight amount paid Limo expenses 5 Req. 1 Stand-alone cost allocation method Seattle Client Denver Client Total stand alone Incremental Cost Allocation method Seattle Client Denver Client Total Shapley Value Seattle Client Denver Client =C1*C3/(C1+C2) =C2*C3/(C1+C2) =C6+C7 =C1 =C3-C10 =C10+C11 Denver Client =C2 Seattle Client =C3-E10 =E10+E11 15 =(C10+E11)/2 I=(C11+E10)/2 =C14+C15 Reg. 3 Stand-alone cost allocation method Seattle Denver Total Incremental Cost Allocation method Seattle Denver =(C1+C4)*(C3+C4)/(C1+C4+C2+C4) =(C2+C4)*(C3+C4)/(C1+C2+C4+C4) =C18+C19 =C1+C4 =C3+C4-C22 =C22+C23 Denver Client =C2+C4 Seattle Client =C3+C4-E22 =E22+E23 Shapley Value Method Seattle Client Denver Client =(C22+E23)/2 =(C23+E22)/2 =C26+C27

Req. 2 Grimes should use the Shapley value method. It is fairer than the incremental method because it avoids considering one party as the primary party and allocating more of the common costs to that party. It also avoids disputes about who is the primary party. It allocates costs in a manner that is close to the costs allocated under the stand-alone method but takes a more comprehensive view of the common cost allocation problem by considering primary and incremental users, which the stand-alone method ignores. The Shapley value (or the stand-alone cost allocation method) would be the preferred methods if Grimes was to send the travel expenses to the Seattle and Denver clients before deciding which engagement to accept. Other factors such as whether to charge the Denver client more because Grimes is accepting the Denver engagement or the Seattle client more because Grimes is not going to work for them can be considered if Grimes sends in his travel expenses after making his decision. However, each company would not want to be considered as the primary party and so is likely to object to these arguments

D C $725.00 $525.000 $1,150.00 $160.00 Atlanta to seattle Atlanta to Denver Flight amount paid Limo expenses Stand-alone cost allocation method Seattle Client Denver Client Total stand alone Incremental Cost Allocation method Seattle Client Denver Client Total Shapley Value Seattle Client Denver Client $667.00 $483.00 $1,150.00 $725.00 Denver Client $425.00 Seattle Client $1,150.00 $525.00 $625.00 $1,150.00 $675.00 $475.00 $1,150.00 17 Reg. 3 Stand-alone cost allocation method Seattle Denver Total Incremental Cost Allocation method Seattle Denver $738.44 $571.56 $1,310.00 $885.00 Denver Client $425.00 Seattle Client $1,310.00 $685.00 $625.00 $1,310.00 Shapley Value Method Seattle Client Denver Client $755.00 $555.00 $1,310.00