Allocating a Common Cost and Incentives to Cooperate At the Hiton Apple Fest and Trade Expo, James Jones, owner of Jones Orchard, saw a sign displayed in front of a vendor's booth I can get you pesticides at $1000 a gallon-guaranteed in writing! Over a one-year- period, the vendor guarantees delivery of between 250,000 and 500.000 gallons of pesticide at a maximum price of $10 per gallon Since Jones Orchard is currently paying $11.30 per gallon, the offer is appealing However Jones unes only 25,000 gallons and the annual management fee for this service is a whopping $275,000 The only way Jones can see to make the offer work is to form a buying consortium with other farmers. As long as all of the farmers are located within 10 square miles, the vendor is willing to allow the formation of a consortium Including Jones Orchard. five farms are within this area. Their pesticide needs and anticipated costs are as follows Gallons Price per Gallon Jones Gilbert 25,000 $11.30 35,000 11.20 P Santos Singh Chen Total 50,000 11.12 100,000. 10.90 150,000 10.70 360,000 All of the farmers are willing to participate in the buying consortium as long as there is an anticipated cost savings for each farmer Everyone agrees that each farmer should pay the same amount for matenus Bu allocation of the management fee is left entirely up to Jones Required a Based upon the numbers provided, demonstrate that this consortium could work Jones tally considers allocating the management fee ether (equaty between at members or (2) based upon each farmer's percentage of total gatons needel Wold ether method work? Show allocation by each method Jones believes would make sense to allocate the management fee on an ability to pay boss As the chapter allocates joint costs based upon pet realicable value, allocate the management fee based upon the potential dollar savings opportunity of each farm is this method feasible a Consider the issue of private versus public information as a relates to the cost alocation schemes presented in this problem. Address whether the information required to implement each scheme is essemary held in common by all of the farmers in the consortium or privately held by each individual farmer In particular, given that the consortium will allocate the management fee by ability to pay how might each firmer's privately he cost information serve to undermine the consortium's future existence Allocating a Common Cost and Incentives to Cooperate At the Hilton Apple Fest and Trade Expo, James Jones, owner of Jones Orchard, saw a sign displayed in front of a vendor's booth I can get you pesticides at $10.00 a gallon-guaranteed in writing! Over a one year period, the vendor guarantees delivery of between 350.000 and 500,000 gallons of pesticide at a maximum price of $10 per gallon Since Jones Orchard is currently paying $11.30 per gallon, the offer is appealing However, Jones uses only 25,000 gallons and the annual management fee for this service is a whopping $275,000 The only way Jones can see to make the offer work is to form a buying consortium with other farmers. As long as all of the farmers are located within 10 square miles, the vendor is willing to allow the formation of a consortium Including Jones Orchard, five farms are within this area. Their pesticide needs and anticipated costs are as follows Price per Gallon Gallons Jones Gilbert 25,000 $11.30 35,000 11.20 Santos 50,000 11.12 Singh 100,000 10.90 Chen Total 150,000 10.70 360,000 All of the farmers are wiling to participate in the buying consortium as long as there is an anticipated cost savings for each farmer Everyone agrees that each farmer should pay the same amount for materials. But allocation of the management fee is left entirely up to Jones Required: a Based upon the numbers provided, demonstrate that this consortium could work b. Jones initially considers allocating the management fee either (t equally between all members or ) based upon each farmer's percentage of total gallons needed Would either method work? Show alocation by each method c. Jones believes it would make sense to allocate the management fee on an ability-to-pay basis. As the chapter allocates joint costs based upon net realzable value allocate the management fee based upon the potential dollar savings opportunity of each farm is this method feasible d Consider the issue of private versus public information as it relates to the cost alocation schemes presented in this problem Address whether the information required to implement each scheme is essentially held in common by all of the farmers in the consortium or privately held by each individual farmer in particular, given that the consortium will allocate the management frey thin heid cost information serve to undermine the consortium's hitim Allocating a Common Cost and incentives to Cooperate At the Hilton Apple Fest and Trade Expo, James Jones, owner of Jones Orchard, saw a sign displayed in front of a vendor's booth I can get you pesticides at $1000 a gallon-guaranteed in writing! Over a one-year period, the vendor guarantees delivery of between 350,000 and 500,000 gallons of pesticide at a maximum price of $10 per gallon. Since Jones Orchard is currently paying $11.30 per gallon, the offer is appealing However, Jones uses only 25.000 gallons and the annual management fee for this service is a whopping $275,000 The only way Jones can see to make the offer work is to form a buying consortium with other farmers. As long as all of the farmers are located within 10 square miles, the vendor is willing to allow the formation of a consortium Including Jones Orchard, five farms are within this area Their pesticide needs and anticipated costs are as follows Price per Gallons Gallon Jones Gilbert 25,000 $11.30 35,000 11.20 Santos 50,000 11.12 Singh 100,000 10.90 Chen Total 150,000 10.70 360,000 All of the farmers are willing to participate in the buying consortium as long as there is an anticipated cost savings for each farmer. Everyone agrees that each farmer should pay the same amount for materials Blu allocation of the management fee is left entirely up to Jones Required a Based upon the numbers provided, demonstrate that this consortium could work b Jones initially considers allocating the management fee either (1) equally between all members or (2) based upon each farmer's percentage of total gallons needed Wild ether method work? Show allocation ty each method c. Jones believes it would make sense to allocate the management fee on an ability to pay basis As the chapter allocates joint costs based upon net realizable value, alocate the management fee basest upon the outential dollar savings opportunity of each farm is this method feasible? d Consider the issue of private versus public information as relates to the cost allocation schemes presented in this problem Address whether the information required to implement each scheme is essentially nest in common by all of the farmers in the consortium or privately held by each individual farmer in particular, given that the consortium will allocate the management fee by ability to pay, how might each farmer's privately held cost information serve to undermine the consortun's hure esidence?