The XYZ Manufacturing Company has two support activity pools, Accounting and Human Resources. Costs for each are $380,000 and $190,000 respectively. 10% of the Human Resource costs are consumed by Accounting and 15% of the Accounting costs are consumed by Human Resources. The company uses the reciprocal method of allocating support costs. The total costs for the Human Resources department which will be allocated to line activities and cost objects will be:
A)$250,761
B) $252,208
C) $247,000
D) $249,850

Question

The XYZ Manufacturing Company has two support activity pools, Accounting and Human Resources. Costs for each are $380,000 and $190,000 respectively. 10% of the Human Resource costs are consumed by Accounting and 15% of the Accounting costs are consumed by Human Resources. The company uses the reciprocal method of allocating support costs. The total costs for the Human Resources department which will be allocated to line activities and cost objects will be: 
A)$250,761
B) $252,208
C) $247,000
D) $249,850

Quizplus · Accepted Answer

The correct answer is A.The total costs for the Human Resources department which will be allocated to line activities and cost objects will be $250,761.The reciprocal method of allocating support costs is used to allocate the costs of support activities to line activities and cost objects. The reciprocal method takes into account the interdependence of support activities and allocates costs based on the amount of resources that each support activity consumes from other support activities.In this case, 10% of the Human Resource costs are consumed by Accounting and 15% of the Accounting costs are consumed by Human Resources. This means that the total costs for the Human Resources department which will be allocated to line activities and cost objects will be $190,000 + (10% x $380,000) = $250,761.

The XYZ Manufacturing Company Has Two Support Activity Pools, Accounting