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The following is a system of simultaneous linear equations to allocate costs using the reciprocal...

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Accounting

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required. The following costs were incurred in three operating departments and three service departments in Westmoreland Company.

Department Direct Costs Label
Subassemblies $ 561,000 P1
Final assembly 786,000 P2
Marketing 296,000 P3
Building occupancy 96,000 S1
Research & development 131,000 S2
Supervision 56,000 S3

Use of services by other departments is as follows.

User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 --- 0.15 0.10
R&D 0.50 0.50 --- --- --- ---
Supervision 0.30 0.30 0.10 0.20 0.10 ---

The equation for department S1 (building occupancy) is:

Multiple Choice

  • S1 = 0.20S3.

  • S1 = $96,000 + 1.00S3.

  • S1 = $96,000 + 0.20S3.

  • S1 = $96,000 + 0.80S2 + 0.20S3.

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