project. The revenues of each benefit should be sufficient to cover the specific costs
and in addition should contribute towards the joint cost in such a manner as to render
the entire project remunerative with revenues realized from each of the benefits at
competitive prices. In this method, a particular purpose, if the revenues from its
benefits are not sufficient to meet its costs, will be subsidized by other purposes
whose benefits are produced at more competitive prices.
19.5.10 Apportioning Joint Cost
The method of dividing joint cost is as follows:
(a) The specific cost is subtracted from the estimated revenues for that purpose,
(b) The remainder is capitalized at the prevailing rate of interest, and.
(c) The remainder is the share of the joint cost or is the upper limit of the share of the
joint cost for this particular purpose.
19.5.11 Suitability of the Various Methods
The use of any one of these methods is not strictly governed by a set of conditions
under which each method is applicable. Actually, the selection is governed by the
fact whether a particular method satisfies the broad and basic principles detailed in
Sect. 19.2 and 19.4 and whether it ensures the most equitable allocation of cost to
various purposes/functions of a multi-purpose project. Unfortunately, no method is
suitable for all the conditions and several different methods may have to be used for
different components in a complex system. The set of conditions under which each
method has been generally found suitable is described below to provide some
guidance to the user.
This problem of allocating or attributing costs has never been easy, ever since the
1933 Tennessee Valley Authority (TVA) Act. Today, there are even more methods,
and yet, not a universally accepted cost allocation method. However, since the
1950s, there has been some general agreement on three methods of cost allocation,
namely:
(1) the separable costs-remaining benefits (SCRB) method,
(2) the alternative justifiable expenditure (AJE) method, and.
(3) the use of facilities (UoF) method.
19.5 Brief Description of Each Method
549
and in addition should contribute towards the joint cost in such a manner as to render
the entire project remunerative with revenues realized from each of the benefits at
competitive prices. In this method, a particular purpose, if the revenues from its
benefits are not sufficient to meet its costs, will be subsidized by other purposes
whose benefits are produced at more competitive prices.
19.5.10 Apportioning Joint Cost
The method of dividing joint cost is as follows:
(a) The specific cost is subtracted from the estimated revenues for that purpose,
(b) The remainder is capitalized at the prevailing rate of interest, and.
(c) The remainder is the share of the joint cost or is the upper limit of the share of the
joint cost for this particular purpose.
19.5.11 Suitability of the Various Methods
The use of any one of these methods is not strictly governed by a set of conditions
under which each method is applicable. Actually, the selection is governed by the
fact whether a particular method satisfies the broad and basic principles detailed in
Sect. 19.2 and 19.4 and whether it ensures the most equitable allocation of cost to
various purposes/functions of a multi-purpose project. Unfortunately, no method is
suitable for all the conditions and several different methods may have to be used for
different components in a complex system. The set of conditions under which each
method has been generally found suitable is described below to provide some
guidance to the user.
This problem of allocating or attributing costs has never been easy, ever since the
1933 Tennessee Valley Authority (TVA) Act. Today, there are even more methods,
and yet, not a universally accepted cost allocation method. However, since the
1950s, there has been some general agreement on three methods of cost allocation,
namely:
(1) the separable costs-remaining benefits (SCRB) method,
(2) the alternative justifiable expenditure (AJE) method, and.
(3) the use of facilities (UoF) method.
19.5 Brief Description of Each Method
549