Use the following information for the next 4 questions. 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:
-If the reciprocal method is used, the equation representing the total cost of the computer department is
A) Computer costs = $55,000 + (0.15 × cafeteria cost)
B) Computer costs = $55,000 + (0.10 × cafeteria cost)
C) Computer costs = $55,000
D) Computer costs = $55,000 + 0.10 × ($55,000 + 0.10 × computer cost)

Question

Use the following information for the next 4 questions. 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: 
-If the reciprocal method is used, the equation representing the total cost of the computer department is
A) Computer costs = $55,000 + (0.15 × cafeteria cost) 
B) Computer costs = $55,000 + (0.10 × cafeteria cost) 
C) Computer costs = $55,000 
D) Computer costs = $55,000 + 0.10 × ($55,000 + 0.10 × computer cost)

Quizplus · Accepted Answer

The reciprocal method allocates costs based on the reciprocal of the cost driver rate. In this case, the cost driver is the cafeteria cost. The reciprocal of the cafeteria cost rate is 1/0.15 = 6.67. This means that for every $1 of cafeteria cost, the computer department will be allocated $6.67 of cost. Therefore, the total cost of the computer department is $55,000 + (0.15 × cafeteria cost).

Use the Following Information for the Next 4 Questions