Allocating the fixed cost as a complement of other cost inputs: A DEA approach |
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Authors: | Yongjun Li Feng Yang Liang Liang Zhongsheng Hua |
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Institution: | 1. School of Business, University of Science and Technology of China, Meilin Road 121, He Fei, An Hui Province 230026, PR China;2. Schulich School of Business, York University, Toronto, Ontario, Canada M3J 1P3 |
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Abstract: | In cost allocation problem, traditional DEA approaches allocate the fixed cost among a group of decision making units (DMUs), and treat the allocated cost as an extra input of each DMU. If costs except for the fixed cost are regarded as inputs in the cost allocation problem, then it is obvious that the fixed cost is a complement of other inputs rather than an extra independent input. Therefore it is necessary to combine the allocated cost with other cost measures in cost allocation problem. Based on this observation, this paper investigates the relationship between the allocated cost and the DEA efficiency score and develops a DEA-based approach to allocate the fixed cost among various DMUs. An example of allocating advertising expenditure between a car manufacturer and its dealers is presented to illustrate the method proposed in this paper. |
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Keywords: | Data envelopment analysis (DEA) Cost allocation Multiple-objective program Super efficiency |
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