Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system, and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs.
The percentage of each service used by each department for a typical period is:
$\begin{array}{c}
\quad\quad\quad\quad\quad\quad\text { Supplied }\\begin{array}{lll}
\text { User } & \text { Op } & P \
\text { Op } & --- & 40 \% \
\text { P } & 30 \% & --- \
\text { Sold to customers } & 70 \% & 60 \%
\end{array}\end{array}$
In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500.
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Under the reciprocal method what is the algebraic solution to the cost allocation problem?
A) Op = $4,500 + 0.40P; P = $2,500 + 0.30Op.
B) Op = $4,500 + 0.70P; P = $2,500 + 0.60Op.
C) Op = $2,500 + 0.40P; P = $4,500 + 0.30Op.
D) Op = $2,500 + 0.70P; P = $4,500 + 0.60Op.

Question

Quizplus · Accepted Answer

The reciprocal method allocates costs based on the percentage of services used by each department. In this case, the operation department (Op) uses 40% of the programming department's (P) services, and the programming department uses 30% of the operation department's services. Therefore, the algebraic solution to the cost allocation problem is:Op = $4,500 + 0.40PP = $2,500 + 0.30Op

Advanced Computer Solutions, Inc In a Typical Period, the Operation Department (Op) Spends $4,500