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A contribution to the linear programming approach to joint cost allocation: Methodology and application

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  • Tehrani Nejad Moghaddam, Alireza
  • Michelot, Christian

Abstract

The linear programming (LP) approach has been commonly proposed for joint cost allocation purposes. Within a LP framework, the allocation rules are based on a marginal analysis. Unfortunately, the additivity property which is required to completely allocate joint costs fails in presence of capacity, institutional or environmental constraints. In this paper, we first illustrate that the non allocated part can be interpreted as a type of producer's surplus. Then, by using the information contained in the Simplex tableau we propose an original two-stage methodology based on the marginal costs and the production elasticity of input factors to achieve an additive cost allocation pattern. The distinguished feature of our approach is that it requires no more information or iterative computations than what is provided by the final Simplex tableau. A real-type refinery case study is provided.

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  • Tehrani Nejad Moghaddam, Alireza & Michelot, Christian, 2009. "A contribution to the linear programming approach to joint cost allocation: Methodology and application," European Journal of Operational Research, Elsevier, vol. 197(3), pages 999-1011, September.
    • Handle: RePEc:eee:ejores:v:197:y:2009:i:3:p:999-1011
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    References listed on IDEAS

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    Cited by:

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    3. Wen-Hsien Tsai & Jui-Chu Chang & Chu-Lun Hsieh & Tsen-Shu Tsaur & Chung-Wei Wang, 2016. "Sustainability Concept in Decision-Making: Carbon Tax Consideration for Joint Product Mix Decision," Sustainability, MDPI, vol. 8(12), pages 1-22, November.
    4. Umed Temurshoev & Fréderic Lantz, 2016. "Long-term petroleum product supply analysis through a robust modelling approach," Working Papers 2016-003, Universidad Loyola Andalucía, Department of Economics.
    5. Klosterhalfen, Steffen T. & Kallrath, Josef & Frey, Markus M. & Schreieck, Anna & Blackburn, Robert & Buchmann, Jan & Weidner, Felix, 2019. "Creating cost transparency to support strategic planning in complex chemical value chains," European Journal of Operational Research, Elsevier, vol. 279(2), pages 605-619.
    6. Tehrani Nejad Moghaddam, Alireza, 2010. "Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices: Comment," Energy Economics, Elsevier, vol. 32(1), pages 243-255, January.
    7. Adedoyin Isola Lawal, 2014. "Tactical Assets Allocation: Evidence from the Nigerian Banking Industry," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(2), pages 193-204, April.

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