Question

Mike and David are students at Berkeley College. They share an apartment that is owned by David. David is considering subscribing to an Internet provider that has the following packages available: Mike spends most of his time on the Internet Ceverything can be found oeline now). David prefers to spend his time talking an the Package phone rather than using the Internet (gong onlinn is a wastle oi ima) They agree that the purchase of the 5/0 tolal package is a win win" shuation Per Month A. Internet access $ 60 Requirements B. Phone services 1 Allorate the $/U between Mike and David using (a) the stand-alone cost allacation mathod, (b) he incremental cost-allocaion 15 methed, and (c) the Shapley value method C. Internet access+ phone services 70 2. Which method would you recommend they use and why? Requirement 1. Allocate the $70 between Mike and David using (a) the stand alone cast-allocation method (b) the incremental cost-alocation methed, and (c) the Shapley value method. (Round your answers to the nearest cent) Costs allocated to Mike Davld (a) Stand-alone (b) Incremental Mike primary user David primary user (c) Shapley Requirement 2. Which method would you recommend they use and why? I would recommend the but takes a more comprehensive view of IH allocates costs in a mannier that is close to the costs alocated under the which l is fairer than the the common cost allocation problem by considering incremental users only primary and incremental users Enter any number in the edit Telds and then conta primary users only Calculator Take a Test- Jose Albr. Course Home- Goog... DOLL P12 F11 EIO FB FO Wగ్ట Prp Home Lock ERC Vedert Backepace Secoll Cock Paune Print Scrven Cadi

Answer 1

solution's LA costs allocated to Tomine Dania .. a) Stand-alone : $56 : $ :6). Incremental Mike Primary user $ 60 $10 . David Primary user $55 $15 .). Shapley a $57,5 $12.5 2) I would recomend the Shapely value approach. It is fairer than the incremental method which Ereates dispares about who is the primary users. 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 Lost allow lost allocation problem by considering primary and incremental usess.

Explanation are 1) The three methods of as stand-alone cost allocating the $70 allocation method. Mike $60 $To = $56 i *$60+ $15 . David & . $15 $60+$15 * $T0 = $14 b) Incremental cost allocation method: i. Assume David (the owner) is the primary user and like is the incremental user user costs Allocated ummutative costs : : Albealed David $15 Mike $55($10-$15) jouai .. 570. $15 $70

. This method may generate some dispute over the ranking, notice that like pays only $55 despite his prime interest in the more expensive Internet access package. David could make the agreement that it mire were ranked Pirst he would have to pay $60 because he is the major internet user. Then, David would only have to pay $10(570-460). 11. Assume Mike is the primary user and . Daviô is the incremental user David Sne ' uses costs Allocated cuinmulative costs - Allocated Mike'. David Total: $ 60 $18 (570-56) $70 $60 $10

.() shapley valuel average over cost allocated as the primary and incremenital user) user costs Allocated Mike . $55+$60-$5115 2 : David $15+510 - $12.5
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