The accountants for Elliot, Inc. are preparing the operating departments overhead budgets. The Maintenance department direct costs are $12,000, and the Administration department direct costs are $54,000. The following data have been collected about use of services: Assume the reciprocal method. The equation to express the full cost of the Maintenance department is:
A) Maintenance = $12,000 + (0.50 × Administration)
B) Maintenance = $12,000 + (0.20 × $54,000)
C) Maintenance = $12,000 + (0.20 × Administration)
D) Maintenance = $12,000 + (0.25 × $54,000)

Question

The accountants for Elliot, Inc. are preparing the operating departments overhead budgets. The Maintenance department direct costs are $12,000, and the Administration department direct costs are $54,000. The following data have been collected about use of services:  Assume the reciprocal method. The equation to express the full cost of the Maintenance department is:
A) Maintenance = $12,000 + (0.50 × Administration) 
B) Maintenance = $12,000 + (0.20 × $54,000) 
C) Maintenance = $12,000 + (0.20 × Administration) 
D) Maintenance = $12,000 + (0.25 × $54,000)

Quizplus · Accepted Answer

The reciprocal method allocates reciprocal services based on the proportion of services provided to and received from other departments. Using the given data, Administration provides 20% of its services to Maintenance, while Maintenance provides 100% of its services to Administration. Therefore, the equation to express the full cost of Maintenance is Maintenance = $12,000 + (0.20 × Administration).

The Accountants for Elliot, Inc