Answer the following question(s)using the information below.Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
Services furnished:

-Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?
A)P = $150,000 - $80,000 (500/6,000)M
B)P = (500/6,000)M
C)P = $80,000 + (500/6,000)M
D)P = $80,000
E)P = $150,000 + (500/6,000)M

Question

Answer the following question(s)using the information below.Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
  Services furnished:
 
-Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?
A)P = $150,000 - $80,000 (500/6,000)M 
B)P = (500/6,000)M 
C)P = $80,000 + (500/6,000)M 
D)P = $80,000 
E)P = $150,000 + (500/6,000)M

Quizplus · Accepted Answer

The reciprocal allocation method allocates costs to service departments and then to production departments, taking into account services received from other departments. In this case, we are asked to find the equation that represents the complete reciprocated cost of the Personnel Department.

The information provided does not include the budgeted manufacturing overhead costs, the allocation basis, or the services furnished by the Personnel Department. Therefore, we cannot directly calculate the complete reciprocated cost of this department.

However, we can use the reciprocal allocation method to allocate costs between the departments and then solve for the complete reciprocated cost of the Personnel Department. Based on the available information, we know that the Personnel Department provides services to the other five departments. Therefore, its costs will be allocated to those departments based on the usage of its services.

Assuming that we have already calculated the allocation of costs between the departments, we can use the following equation to find the complete reciprocated cost of the Personnel Department:

P = $80,000 + (500/6,000)M

where P is the complete reciprocated cost of the Personnel Department and M is the number of units of service provided by this department to the other five departments.

Option C is the correct answer because it includes the fixed cost component ($80,000) and the variable cost component (500/6,000M) that represents the allocation of costs based on service usage.

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