Question

Sunny Gunn, a self-employed consultant near Johor, received an invitation to visit a

prospective client in Kuala Lumpur. A few days later, he received an invitation to make a

presentation to a prospective client in Kedah. He decided to combine his visits, traveling

from Johor to Kuala Lumpur, Kuala Lumpur to Kedah, and Kedah to Johor.

Gunn received offers for his consulting services from both companies. Upon his return,

he decided to accept the engagement in Kedah. He is puzzled over how to allocate his

travel costs between the two clients. He has collected the following data for regular

round-trip fares with no stopovers:

Johor-Kuala Lumpur RM140 Kuala Lumpur-Kedah RM110

Gunn paid RM180 for his three-leg flight (Johor-KL-Kedah-Johor). How would Gunn allocate the RM180 airfare between the clients in KL and Kedah using (a) stand-alone cost allocation method, (b) the incremental cost-allocation method.

a. Which method would you recommend Gunn use and why?

Answer 1