Question

Ben and Gary are students at Berkeley College. They share an apartment that is owned by Gary. Gary is considering subscribing to an internet provider that has the following packages available.

Package	Per month
Internet access	$80
Phone services	$36
Internet access + Phone services	$85

Ben spends most of his time on Internet while Gray prefers to spend his time talking on the phone rather than using the internet. They agree that the purchase of the $85 total package is a “win-win” situation.

Allocate the $85 between Ben and Gray using (a) the stand-alone cost-allocation method, (b) the incremental cost allocation method with Ben being the primary user, (C) the incremental cost allocation method with Gray being the primary user, and (d) the Shapley value method.

Answer 1

		Ben	Gray
a.	Stand-alone cost	$58.62	$26.38
b.	Incremental (Ben primary)	$80	$5
c.	Incremental (Gray primary)	$36	$49
d.	Shapley value	$6450	$20.50

Part A

Stand-alone cost allocation method :

Ben = (80/(80+36))*85 = $58.62

Gray = (36/(80+36))*85 = $26.38

Part B

Incremental cost allocation method with Ben being the primary user

User	Costs allocated	Cumulative costs allocated
Ben	80	80
Gray	5	85
Total	$85

Part C

Incremental cost allocation method with Gray being the primary user

User	Costs allocated	Cumulative costs allocated
Gray	36	36
Ben	49	85
Total	$85

Part D

Shapley value method

Cost allocation = cost allocated as primary user + cost allocated as incremental used / 2

Ben = (80+49)/2 = $64.50

Gray = (5+36)/2 = $20.50