Question

Monty is the CFO of a large organization with fast-food outlets in London, Paris, and Frankfurt. When the manager at an outlet asks for his help, he flies out and discusses matters such as the controls that are in place for each outlet and any expected upcoming changes in costs or procedures that will affect productivity. The outlets are charged for the airfare for these trips. Shortly after being contacted by the Frankfurt outlet, the Paris outlet also called to set up a visit. Monty’s airfare from London to Frankfurt to Paris to London is €300. If he travels round trip from London to Frankfurt, the cost would be €250, and if he travels round trip from London to Paris, the fare would be €200.

REQUIRED
A. Calculate the charge for Monty’s airfare to each outlet using the stand-alone allocation method.
B. Calculate the charge for Monty’s airfare to each outlet using the incremental cost allocation method.
C. Which allocation method is most fair? Explain your reasoning.



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  • CreatedJanuary 26, 2015
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