The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data: $\begin{array}{llll}
&&\text { Services Provided By }\
& \underline{\text { Computer}}&& \underline{\text { Cafeteria} }\
\text { Direct costs } & \$ 55,000 & & \$ 35,000 \
\text { Service provided to: } \
\quad \text { Computer department }&-- & & 15 \%\
\text { Cafeteria } & 10 \% & &-- \
\text { Operating department 1 } & 50 \% & & 40 \% \
\text { Operating department 1 } & 40 \% & & 45 \%\
\end{array}$
If the reciprocal method is used, the equation representing the total cost of the computer department is:
A) Computer costs = $55,000 + (0.15 × cafeteria cost)
B) Computer costs = $55,000 + (0.10 × cafeteria cost)
C) Computer costs = $55,000
D) Computer costs = $55,000 + 0.10 × ($55,000 + 0.10 × computer cost)

Question

The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data: $\begin{array}{llll}
&&\text { Services Provided By }\
& \underline{\text { Computer}}&& \underline{\text { Cafeteria} }\
\text { Direct costs } & \$ 55,000 & & \$ 35,000 \
\text { Service provided to: } \
\quad \text { Computer department }&-- & & 15 \%\ 
\text { Cafeteria }  & 10 \% & &--  \
\text { Operating department 1 } & 50 \% & & 40 \% \
\text { Operating department 1 } & 40 \% & & 45 \%\
\end{array}$
 If the reciprocal method is used, the equation representing the total cost of the computer department is:
A) Computer costs = $55,000 + (0.15 × cafeteria cost)
B) Computer costs = $55,000 + (0.10 × cafeteria cost)
C) Computer costs = $55,000
D) Computer costs = $55,000 + 0.10 × ($55,000 + 0.10 × computer cost)

Quizplus · Accepted Answer

The reciprocal method allocates costs based on the services provided by each department to other departments. In this case, the computer department provides 10% of its services to the cafeteria and 50% to operating department 1. The cafeteria provides 15% of its services to the computer department and 40% to operating department 1. Using this information, we can set up the following equations:Computer costs = $55,000 + (0.15 × cafeteria cost)Cafeteria costs = $35,000 + (0.10 × computer cost)Solving these equations simultaneously, we get:Computer costs = $55,000 + (0.15 × $35,000) = $55,000 + $5,250 = $60,250Cafeteria costs = $35,000 + (0.10 × $60,250) = $35,000 + $6,025 = $41,025

The Managers of Conch, Inc If the Reciprocal Method Is Used, the Equation Representing the Accurate