Joint Cost Allocation and Decision Making: The Marginal Revenue Approach

Abstract

Various methods have been suggested for joint cost allocation. Among them, the marginal revenue approach is thought to be decision-relevant. This thesis explores the theoretical background of this approach and analyzes its potential usefulness. Both nonlinear and linear models are studied and compared. It is concluded that the usefulness of the marginal revenue approach is decision-context-dependent and its utility can be realized only if the users develop a clear understanding of it. More sophisticated models, such as a multi-period model and a stochastic model, are developed and analyzed in this thesis. Fruitful research can be established in these areas. Finally, a real joint process of soybean milling was studied and modeled. On the basis of that case study, we conclude that the cost allocation model has potential usefulness.