A Modern Family Phone Plan

INTRODUCTION

As defined in the Federal Accounting Standards Advisory Board (FASAB) Glossary of Cost Accounting Terms, cost assignment is “a process that identifies costs with activities, outputs, or other cost objects. In a broad sense, costs can be assigned to processes, activities, organizational divisions, products, and services. There are three methods of cost
assignment: (a) directly tracing costs wherever economically feasible, (b) cause-and-effect, and (c) allocating costs on
a reasonable and consistent basis.”1 By assigning costs to different cost objects (instead of leaving costs in an unassigned pool), organizations can potentially realize several benefits, including, but not limited to, better pricing of products and services, better manager accountability over limited resources, and better resource planning for the future.
While cost assignment is a standard issue faced by
for-profit companies, it also has extensive applications for not-for-profit organizations and for everyday transactions in which several individuals or groups benefit from shared resources. Whether it is a group of friends splitting the bill at dinner, a pair of roommates planning on divvying up the rent for a new apartment, multiple business teams hiring a
shared IT (information technology) specialist, or a company that must charge its services to several government contracts, reliable (or unreliable) cost assignment can significantly affect the behavior, profitability, and satisfaction of all parties who benefit from and contribute toward shared resources.

The following case, “A Modern Family Phone Plan,” covers the allocation of the common costs of a cellular phone bill that benefits multiple family members. In this case, you will need to consider why and how you might split the cost of the several and varied components of a shared resource (a monthly phone plan) and how you might communicate the cost allocation (i.e., financial burden) to other parties (i.e., your family members).

CASE

Two years of preschool, 12 years of private elementary and secondary education, four years at a top-tier state university, four more years in medical school, and, finally, four years
in medical residency: Zayna Khan’s road to becoming an internal medicine physician had been challenging but, ultimately, fruitful. Her graduation day had been a
joyous and proud moment for her and her whole family in attendance, especially for her father, Rizwan, a Pakistani immigrant who had lived in the United States for nearly 40 years, working as an engineer for one of the Big Three auto companies; and less so for her younger brother, Manu, who, as the now-teenage baby of the family, always begrudged any attention doted on his sibling.
Zayna—now Dr. Khan—rode an emotional rollercoaster for several months that summer. Excitement to be graduating made way for relief to be done with school, which was then overshadowed by anxiety to be joining a small

1 Federal Accounting Standards Advisory Board (FASAB), “Glossary of Cost Accounting Terms Established in SFFAS 4, Managerial Cost Accounting Concepts and Standards for the Federal Government,” http://files.fasab.gov/pdffiles/costacc_glossary.pdf.

clinic, where even as a newly minted physician she would be a part-owner of the medical practice. Her first weeks with her patients had been exhausting but fulfilling; it felt like the work was never done, but she reveled in being able to help people in her community. With those experiences as her backdrop, Zayna sat back to enjoy a relaxing Saturday evening doing something noticeably and enjoyably mundane: reading an email from her father (see Exhibit 1) and poring over her most recent phone bill (see Exhibit 2).
A month ago, Zayna had added her father’s and brother’s cellular phone lines to her own account. She was able to send them new smartphones and set them up to share her data

allowance and plan discounts. To her surprise, Zayna’s father had just emailed asking how much he should pay for his and Manu’s share of the phone bill. Zayna was slightly taken aback: One day she would be a very financially secure doctor, but today she had a fledgling medical practice, a mortgage, and a mountain of student loans (see Exhibit 3). She was willing to provide phone service to her father and brother for free, but she knew her father’s offer to pay his and Manu’s share was sincere. What is the responsible thing for her to do? What was she going to say to her father? Should she “charge” her father for phone service, and if so, how much would be appropriate?

Exhibit 2. August Phone Bill

PHONE BILL DETAILS REF # August 2017
1 Account ZK Line RK
Line MK
Line Total
Account Charges & Credits
Talk Plan (700 min) 2 $30.00 $30.00
Data Plan (6 GB) 3 $50.00 $50.00
Access Discount (22%) 4 ($17.60) ($17.60)
Talk Time Overage Fee 5 $10.00 $10.00
Data Overage Fee 6 $0.00 $0.00
$72.40 $72.40
Line Charges and Credits
Standard Talk Time (minutes) 7 300 200 200 700
Overage Talk Time (minutes) 8 50 0 75 125
Total Talk Time (minutes) 9 350 200 275 825
Data Usage (GB) 10 1.50 1.00 2.50 5.00
Monthly Line Charges 11 $20.00 $40.00 $40.00 $100.00
Usage & Purchase Charges 12 $5.00 $0.00 $15.00 $20.00
Surcharges & Other Charges 13 $4.16 $3.40 $3.52 $11.08
Government Taxes and Fees 14 $5.99 $6.05 $6.18 $18.22
$35.15 $49.45 $64.70 $149.30
TOTAL MONTHLY BILL $72.40 $35.15 $49.45 $64.70 $221.70
Note: All monetary values are in U.S. dollars.

Zayna Khan  Rizwan Khan Manu Khan

Relationship to Zayna Self Father Brother
Age 29 54 15
Dependents 1 (self) 2 (self and son) 0
Monthly Gross Income $10,000 $5,000 $0
Monthly Living Expenses $6,000 $3,500 $500
Bank Account Balance $8,000 $24,000 $300
Retirement Account Balance $0 $180,000 $0

Debts $250,000 school loan
$200,000
mortgage
$0
$0
Note: All monetary values are in U.S dollars.