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Cost Allocation and Pricing

Research paper

This Competitive Neutrality Complaints Office research paper was released on 7 October 1998. It examines cost allocation and pricing issues, particularly as they relate to business units that exist as part of larger general government agencies.

The paper is intended to promote debate among policy makers, as part of the process of developing a common understanding of these issues.

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Contents

Preliminaries
Cover, Copyright, Preface, Contents, Overview

Chapter 1 Introduction
1.1 Application of competitive neutrality
1.2 Cost allocation
1.3 Scope and structure of the paper

Chapter 2 Approaches to identifying the cost baseAssessment of issues
2.1 Fully distributed cost
2.2 Marginal cost
2.3 Incremental cost and avoidable cost
2.4 Which cost allocation method is best?

Chapter 3 Measuring avoidable/incremental cost
3.1 Time period
3.2 Allocating capital costs
3.3 At what level within an activity are costs estimated?
3.4 Summary: testing for compliance with competitive neutrality

Chapter 4 Some wider policy issues
4.1 Efficiency versus equity
4.2 Spin-offs from commercial activity

Appendix A Cost allocation policies

Appendix B Cost allocation: a practical example

References

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