A Proposed Mathematical Model for ‎Allocating Energy Costs and Joint ‎Costs in Industrial Facilities in Light of ‎Agency Theory

Authors

Hasan Zaki, Damascus ‎University, SyriaFollow

Abstract

Banker and Haghes (1994) demonstrated the economic sufficiency of normal activity - based ‎unit cost for optimal pricing decisions. This paper provides an agency paralle to their analysis by ‎examining how, in the presence of capacity cost, the desirable tradeoff between risk- sharing ‎and incentives can be achieved through modification of the performance measures on which ‎the contract is based. Similar to Banker and Hughes (1994), it was found in this study that the ‎optimal capacity cost allocation is a function only of budgeted volume when capacity can be ‎used to product a single product. Analysis of a joint production setting, however, reveals the ‎optimal allocation to be based on the joint products estimated net realizable values. This paper ‎proceeds as follows. In section 6, the basic linear model common to subsequent sections is ‎presented. In section 7. The model is used to address the allocation of capacity costs. The ‎contract is derived to show how capacity costs are reflected in optimal compensation. Then, ‎the (same) solution is obtained under the requirement that the effect of capacity cost on the ‎agents compensation must come through the accounting measure. Section 8 deals with ‎allocation of joint costs in a similar fashion. Section 9 concludes the paper

Recommended Citation

Zaki, Hasan (2003) "A Proposed Mathematical Model for ‎Allocating Energy Costs and Joint ‎Costs in Industrial Facilities in Light of ‎Agency Theory," Jerash for Research and Studies Journal مجلة جرش للبحوث والدراسات: Vol. 4: Iss. 2, Article 3.
Available at: https://digitalcommons.aaru.edu.jo/jpu/vol4/iss2/3