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 S2 (research and development)is:
A)S2 = $120,000 + .15S1 + .65S2 + .20S3.
B)S2 = .15S1 + 20S3.
C)S2 = $120,000 + .15S1 + .20S3.
D)S2 = $120,000 + .40S1 + .60S3.

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 S2 (research and development)is:
A)S2 = $120,000 + .15S1 + .65S2 + .20S3. 
B)S2 = .15S1 + 20S3. 
C)S2 = $120,000 + .15S1 + .20S3. 
D)S2 = $120,000 + .40S1 + .60S3.

Quizplus · Accepted Answer

Based on the information provided, the equation for department S2 can be set up as S2 = total costs incurred by S2 + (percentage of services received from S1 * total costs incurred by S1) + (percentage of services received from S2 * total costs incurred by S2) + (percentage of services received from S3 * total costs incurred by S3).
Substituting the given values, we get:
S2 = $120,000 + (.15 * S1) + (.20 * S3)
Therefore, the correct choice is C.

The Following Set Up Is a System of Simultaneous Linear