Abstract ABSTRACT: This study proposes a new method for approximating service department costs when reciprocal services exist. Analytical results are provided demonstrating that, under certain conditions, the method produces approximations that converge to allocations under the theoretically correct reciprocal method. Numerical results are provided demonstrating that, the proposed method is more accurate than the two simplified allocation procedures, the direct and step methods, even when nontrivial parameter estimation errors are assumed. These results, based on sample statistics for hypothetical firm data, suggest that many real-world firms may be able to use the proposed method to make more accurate marginal cost assessments and, therefore, to Improve their service-related operating decisions.
Jacobs et al. (Thu,) studied this question.
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