Question

Your company has a travel policy that reimburses employees for the “ordinary and necessary” costs of business travel. Employees often mix a business trip with pleasure by either extending the time at the destination or traveling from the business destination to a nearby resort or other personal destination. When this happens, an allocation must be made between the business and personal portions of the trip. However, the travel policy is unclear on the allocation method to follow.

Consider this example. An employee obtained a business-class ticket for $9,558 and traveled the following itinerary:

From	To	Miles	One-Way Regular Fare			Purpose
Chicago	Paris	4,170	$	3,720		Business
Paris	Rio de Janeiro	5,770		4,450		Personal
Rio de Janeiro	Chicago	5,290		3,100		Return

On the date of the flights between Chicago and Paris (and return), a restricted round-trip fare of $4,980 was available.

Required:

a. Compute the business portion of the airfare and state the basis for the indicated allocation that is appropriate according to each of the following independent scenarios:

1. Based on the maximum reimbursement for the employee.

2. Based on the minimum cost to the company.

Answer 1

Answer

Given data

From	To	Miles	One-Way Regular Fare		Purpose
Chicago	Paris	4,170	$	3,720		Business
Paris	Rio de Janeiro	5,770		4,450		Personal
Rio de Janeiro	Chicago	5,290		3,100		Return

Consider this example. An employee obtained a business-class ticket for $9,558 and traveled the following itinerary

a restricted round-trip fare of $4,980 was available

1. Based on the maximum reimbursement for the employee.

Round trip cost from Chicago to Paris ($3720*2)

= $7,440

Total cost of the trip = $9,558

Since the round trip is less than the total cost of the trip,

employee could request $7440

Business portion of the airfare is$7440

2.  Based on the minimum cost to the company.

$4980 would be the minimum cost to the company.

The restricted round trip fare from the Chicago to Paris allows

business class travel for international trips

Business portion of the airfare is $4980