I cant believe what just happened back there, Julie exclaimed to her friend, Becky, as they were
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Julie’s complaint related to her share of the cost. When the final check (which made Julie gulp in shock) arrived, someone proposed an equal split. The proposal was quickly seconded. Although some looked uncomfortable, no one objected. The bill was settled and the friends dispersed.
Julie felt that the scheme was unfair. She had consumed only soda and the cost for the liquor represented at least half of the total bill. However, she felt awkward about complaining and spoiling an otherwise excellent evening. She expressed her discomfort only when she and Becky were returning to their apartment.
Becky sympathized with Julie. As a vegetarian, Becky could not consume many of the appetizers and had to settle for an inexpensive pasta while the others splurged on lobster and other expensive delicacies. The two friends felt that they wound up paying for the other four friends’ meals.
Required:
a. What is the objective of allocating the cost of the bill among the six friends? What considerations come into play when choosing an allocation mechanism?
b. In addition to equally splitting the cost among all diners, list at least two other methods that the friends could have used to allocate the cost among themselves. What are the costs and benefits of each method?
c. Assume that none of the friends were teetotalers and none were vegetarian. Suppose the friends had agreed, at the start of the meal, to split the cost equally. Would you expect the total bill to differ if the friends had agreed, at the start, to track individual orders for drinks and entrees? Why or why not?
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Related Book For
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin
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