Reference no: EM132797168
Mr. Pretentious Snooty, a self-employed consultant near Mumbai, received an invitation to visita prospective client in Delhi, named Humble Corp. A few days later, he received an invitation to make a presentation to another prospective client in Jaipur, named Innocent Corp. He decided to combine his visits, traveling from Mumbai to Delhi, Delhi to Jaipur, and Jaipur to Mumbai.
Mr. Pretentious Snooty received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Jaipur also. 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:
- Mumbai to Delhi INR 36,000
- Mumbai to Jaipur INR 44,000
Mr. Pretentious Snooty paid INR 60,000 for his three-leg flight (Mumbai-Delhi, Delhi-Jaipur, Jaipur- Mumbai). In addition, he paid INR 1,500 each way (INR 3,000 total) for limousines from his home to Mumbai Airport and back when he returned.
Problem 1. How should Mr. Pretentious Snooty allocate the INR 60,000 airfare between the clients in Delhi and Jaipur using (a) the stand-alone cost-allocation method, (b) the incremental cost-allocation method, and (c) the Shapley value method?
Problem 2. Which method would you recommend Mr. Pretentious Snooty use and why?
Problem 3. How should Mr. Pretentious Snooty allocate the INR 3,000 limousine charges between the clients in Delhi and Jaipur?