The following set up is a system of simultaneous linear equations to allocate costs using the reciprocal method.Matrix algebra is not required.The following costs were incurred in three operating departments and three service departments in Reality Company. Use of services by other departments is as follows. The equation for department P2 (final assembly)is:
A)P2 = .25S1 + .50S2 + .30S3.
B)P2 = $775,000 + .25P2 + .20P3 + .15S2 + .10S3.
C)P2 = $775,000 + .30S1 + .50S2 + .20S3.
D)P2 = $775,000 + .25S1 + .50S2 + .30S3.

Question

The following set up is a system of simultaneous linear equations to allocate costs using the reciprocal method.Matrix algebra is not required.The following costs were incurred in three operating departments and three service departments in Reality Company.  Use of services by other departments is as follows.  The equation for department P2 (final assembly)is:
A)P2 = .25S1 + .50S2 + .30S3. 
B)P2 = $775,000 + .25P2 + .20P3 + .15S2 + .10S3. 
C)P2 = $775,000 + .30S1 + .50S2 + .20S3. 
D)P2 = $775,000 + .25S1 + .50S2 + .30S3.

Quizplus · Accepted Answer

The reciprocal method involves first allocating the service department costs to the operating departments based on their usage of services. According to the information given in the table, P2 uses 25% of S1 services, 50% of S2 services, and 30% of S3 services. So the equation for P2 would be:

P2 = $775,000 + .25S1 + .50S2 + .30S3.

Therefore, the correct choice is D.

The Following Set Up Is a System of Simultaneous Linear