Your company has a travel policy that reimburses employees for the “ordinary and
ID: 2516757 • Letter: Y
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 $9,627 and traveled the following itinerary:
On the date of the flights between Chicago and Paris (and return), a restricted round-trip fare of $4,940 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.
From To Miles One-Way Regular Fare Purpose Chicago Paris 4,180 $ 3,680 Business Paris Rio de Janeiro 5,760 4,420 Personal Rio de Janeiro Chicago 5,340 3,370 ReturnExplanation / Answer
a.
1. Since the round-trip cost of the Chicago-Paris portion would have been $ 7,360 (2 x $ 3,680), and this is less than the total cost of the trip ($ 9,627), the employee could request as much as $ 7,360.
2. The minimum cost to the company would be $ 4,940, the restricted round-trip fare from Chicago to Paris assuming company policy allows business class travel for international trips.
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