Use the following to answer questions:
A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows:

Direct costs in the various departments are as follows:

-If the reciprocal-method of allocation is used, what equation would represent service department S1?
A) S1= $210,000 + .10S2 + .05S3 + .4P1 + .45P2
B) S1= $210,000 + .45P1 + .55P2
C) S1= $210,000 + .10S2+ .05S3
D) S1= $210,000 + .10S2 + .10S3

Question

Use the following to answer questions:
A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows:
  
Direct costs in the various departments are as follows:
 
-If the reciprocal-method of allocation is used, what equation would represent service department S1?
A) S1= $210,000 + .10S2 + .05S3 + .4P1 + .45P2 
B) S1= $210,000 + .45P1 + .55P2 
C) S1= $210,000 + .10S2+ .05S3 
D) S1= $210,000 + .10S2 + .10S3

Quizplus · Accepted Answer

The reciprocal method of allocation involves allocating service department costs to other service departments and to production departments. The equation for S1 includes its direct costs ($210,000) and the proportions of services received from other service departments (S2 and S3), but not the proportions of services provided to production departments (P1 and P2), as those are outcomes of the allocation process, not inputs.

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