Joint cost allocation for multiple lots

Bala V. Balachandran, Ram T S Ramakrishnan

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)247-258
Number of pages12
JournalManagement Science
Volume42
Issue number2
DOIs
StatePublished - Feb 1996

Keywords

  • Core Solutions
  • Cost Allocation
  • Dual Methods
  • Stability

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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