Question

Ed 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: Package Per Month $ 60 A. Internet access B. Phone services C. Internet access + phone services

Answer 1

Sol Ed and David are students at Berkeley College =) They shase an apartment that is owned by David, 1) Given data. Package permonth. $ GO 20 A. Internet access B. Phone services e Internet access + Phone Services 75 1) Q) the stand alone cost-allocation method. Ed: Internet access -X internet access Internet access t Phone Servicess + Phone Servicess, Ede - 60 x 75 $60 +90 . . 60 x 75 50-75 x 75 € 56.25 Ed = 56.25

David: 20 x 70 60 +90 - 30 x 70 -0.25 X 70 la.5 David = 17.5 (6) Incremental cost allocation method: 1. Assume David ( the ownes is Polmary users and Audi the incsementou useo costs Allbrated Cumulative costs Allocated. David $ 20 Ed $5mg (75-20) 995 Total $ 75 Sharley value Coverage ovey Co Stollo cated as the poimary and incremental uses. User COSTS Allocated ted 5 +60 $57.5

(0) David. $ 20+ $10 David & 15 This method may be generate some dispute over the ranking. Ed pays only 55 despite his poime interest. In the more expensive internet access Package & David could make the agreem greement that if, td were Danked first he would have to pay $60 because he is the major internet users. as Then david would only have to pay $15 (75-60): 11 Assume ed is the primary users and David is the incrementou users. user costs allocated cumulative costs Allocated 960 Ed. $ 60 $15 $75. David (25-60) Total $75

costs allocated to David ed @ Stand alone. $ 56.95 $12.5 (b) Increment au Ed Primary user David Boimasy user $ 60 $15 420 $57.5 $15 @ shapley @ method would yoce recommend they use It is fairer than the incremental method which creates disputes about who is the primary user. 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 COSZ A Considering the problem by poimary and incremental - yers.