Premium
A Simple Algorithm for the Mathematical Programming Approach to Joint Cost Allocation for Decision Making (Demand‐Adjusted‐Sales‐Value Algorithm) *
Author(s) -
Cheng C. S. Agnes
Publication year - 1991
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1991.tb01277.x
Subject(s) - computer science , simple (philosophy) , algorithm , value (mathematics) , mathematical optimization , joint (building) , context (archaeology) , element (criminal law) , linear programming , mathematics , architectural engineering , paleontology , philosophy , epistemology , machine learning , law , political science , engineering , biology
This paper investigates the mathematical programming (MP) approach for decision making and cost allocation in the context of joint products. Through analysis of the MP approach to marginal‐value‐based cost allocations, an algorithm is developed to show that the allocations contain two elements: an element that is specific to individual joint products due to differences in demand elasticities, and an element based on relative adjusted sales values. If demand elasticities are identical for all joint products, then the traditional sales value method will generate the same cost allocation as the MP method. The new algorithm, the demand‐adjusted‐sales‐value algorithm (DASV), is especially helpful for solving the MP model with linear demand functions. The DASV algorithm provides an easy way to generate costs that are useful for optimal decision making.