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Joint Cost Allocation for Multiple Lots

Author

Listed:
  • Bala V. Balachandran

    (Northwestern University, Evanston, Illinois 60201)

  • Ram T. S. Ramakrishnan

    (University of Illinois at Chicago, Chicago, Illinois 60607)

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.

Suggested Citation

  • Bala V. Balachandran & Ram T. S. Ramakrishnan, 1996. "Joint Cost Allocation for Multiple Lots," Management Science, INFORMS, vol. 42(2), pages 247-258, February.
    • Handle: RePEc:inm:ormnsc:v:42:y:1996:i:2:p:247-258
    DOI: 10.1287/mnsc.42.2.247
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    Citations

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    Cited by:

    1. Alessia D'Andrea, 2017. "Blood Components as Joint Products: A Literature Review of Cost-Allocation Methods," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(7), pages 1-46, June.
    2. Dixon, R. & Trenchard, P. M., 2001. "Bipolar value-driven joint product costing," Omega, Elsevier, vol. 29(6), pages 479-490, December.
    3. Tehrani Nejad Moghaddam, Alireza & Michelot, Christian, 2009. "A contribution to the linear programming approach to joint cost allocation: Methodology and application," European Journal of Operational Research, Elsevier, vol. 197(3), pages 999-1011, September.
    4. Jérôme De Boeck & Luce Brotcorne & Bernard Fortz, 2022. "Strategic bidding in price coupled regions," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 95(3), pages 365-407, June.
    5. Klosterhalfen, Steffen T. & Kallrath, Josef & Frey, Markus M. & Schreieck, Anna & Blackburn, Robert & Buchmann, Jan & Weidner, Felix, 2019. "Creating cost transparency to support strategic planning in complex chemical value chains," European Journal of Operational Research, Elsevier, vol. 279(2), pages 605-619.
    6. Xin Chen, 2009. "Inventory Centralization Games with Price-Dependent Demand and Quantity Discount," Operations Research, INFORMS, vol. 57(6), pages 1394-1406, December.

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