An analysis of the separable costs - remaining benefits method of joint cost allocation.

The separable costs - remining benefits (SCRB) incremental cost-allocation technique, preferred for United States Department of Agriculture Forest Service use, is critically analyzed. The paper mathematically specifies the SCRB model and demonstrates that the long-standing reasons for its wide appeal are not always valid. The analysis focuses on three fundamental reasons associated with the appeal of SCRB: 1) the ability of SCRB allocations to cover separable costs, 2) the claim that SCRB allocations will not make an efficient project purpose appear inefficient, and 3) the equity criteria often associated with SCRB. The paper shows that SCRB allocations will not always cover separable costs and suggests replacing the SCRB tests for purpose efficiency. The paper also shows that current SCRB formulations incorrectly define remaining benefits and, hence, the equity relations often associated with SCRB is defined incorrectly. The paper also suggests a general interpretation of the opportunity-cost concept that defines remaining benefits. -Authors