Our company has a travel policy that reimburses employees for the “ordinary and necessary” costs of business travel. Employees often mix a business trip with pleasure by either extending the time at the destination or traveling from the business destination to a nearby resort or other personal destination. When this happens, an allocation must be made between the business and personal portions of the trip. However, the travel policy is unclear on the allocation method to follow.

 

Consider this example. An employee obtained a business-class ticket for $9,727 and traveled the following itinerary.

From	To	Miles	One-Way Regular Fare			Purpose
Chicago	Paris	4,150	$	3,630		Business
Paris	Rio de Janeiro	5,610		4,470		Personal
Rio de Janeiro	Chicago	5,340		3,230		Return

On the date of the flights between Chicago and Paris (and return), a restricted round-trip fare of $4,920 was available.

Required:

a. Compute the business portion of the airfare according to each of the following independent scenarios:

1. Based on the maximum reimbursement for the employee.

2. Based on the minimum cost to the company.