Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1
5.16
Allocation of common costs.
(20–30 min)
1
The available criteria to guide cost-allocations include
a
Cause and effect. It is not possible to trace individual causes (basic news or
premium movies or premium sports) to individual effects (viewing by Rolf or
Ilse or Ulrich). The €70 total package is a bundled product.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
b
Benefits received. There are various ways of operationalising the benefits received
i
Monthly service charge for their prime interest – Basic news for Rolf (€32), premium movies for Ilse (€25) and premium sports for Ulrich (€30). This measure captures the services available to be used by each person.
ii
Actual usage by each person – This would involve having a record of viewing by each person and then allocating the €70 on a percentage viewing time basis. This measure captures the services actually used by each person.
c
Ability to pay. This criterion requires three people to agree upon their relative ability to pay. One measure here would be their respective salaries with Frankfurt Fire Brigade.
d
Fairness or equity. This criterion is relatively nebulous. A straightforward approach would be to split the €70 equally among the three parties.
2
Three methods of allocating the €70 are


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