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 computer costs allocated to operating department 1 will be:
A)$47,031
B)$27,500
C)$30,584
D)$22,000

Question

Quizplus · Accepted Answer

To use the reciprocal method, we need to first calculate the reciprocal of the percentages of service provided.

For the Computer department: 
Reciprocal = 1/15% = 6.67

For the Cafeteria: 
Reciprocal = 1/10% = 10

Then, we allocate the support department costs using these reciprocals and the direct costs.

For Operating department 1: 
Computer department allocation = ($55,000 + (50% x $35,000)) x 6.67 = $294,031
Cafeteria allocation = (40% x $35,000) x 10 = $14,000
Total allocation = $294,031 + $14,000 = $308,031
Allocated cost per unit = $308,031 / 10 units = $30,584

Therefore, the answer is choice C) $30,584.

The Managers of Conch, Inc