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: Services Provided By
Computer Cafeteria
Direct costs $55,000 $35,000
Service provided to:
Computer department ---- 15%
Cafeteria 10% ----
Operating department 1 50% 40%
Operating department 2 40% 45%
If the reciprocal method is used, the equation representing the total cost of the cafeteria is:
A)Cafeteria = $35,000
B)Cafeteria = $35,000 + (0.15 × computer cost)
C)Cafeteria = $35,000 + (0.10 × computer cost)
D)Cafeteria = $35,000 + 0.10 × ($55,000 + 0.10 × computer costs)

Question

Quizplus · Accepted Answer

The reciprocal method allocates support department costs based on the proportional services provided by the support departments to each other and to the operating departments. Using this method, the equation representing the total cost of the cafeteria is:

Cafeteria cost = Direct cost + (Computer department service × Computer department cost) + (Operating department 2 service × Operating department 2 cost)

Based on the given data, the cafeteria has a direct cost of $35,000 and receives 10% of the services provided by the computer department. Therefore, the equation becomes:

Cafeteria cost = $35,000 + (0.10 × $55,000) = $40,500

Thus, the best choice is C, which represents the most accurate allocation of support department costs to the cafeteria.

The Managers of Conch, Inc