Logo Logo

Joint Cost Allocation for Multiple Lots, Management Science

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.

Type

Article

Author(s)

Bala Balachandran

Date Published

1996

Citations

Balachandran, Bala. 1996. Joint Cost Allocation for Multiple Lots. Management Science. 42(2): 247-258.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more