Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?
A) P = $400,000 - $150,000 (1000 / 13,100) M
B) P = (1000 / 13,100) M
C) P = $150,000 + (1000 / 13,100) M
D) P = $150,000

Question

Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?
A) P = $400,000 - $150,000 (1000 / 13,100) M 
B) P = (1000 / 13,100) M 
C) P = $150,000 + (1000 / 13,100) M 
D) P = $150,000

Quizplus · Accepted Answer

The reciprocal allocation method involves calculating the reciprocal of each department's percentage of services received and then multiplying it by the total cost of that department. The Personnel Department's percentage of services received is 13,100/100,000 = 0.131. Taking the reciprocal of this gives us 1/0.131 = 7.6336. Multiplying this by the Personnel Department's total cost of $150,000 gives us $1,144,040. Therefore, the linear equation for the Personnel Department's complete reciprocated cost is P = $150,000 + (1000 / 13,100) M.

Hugo, Owner of Automated Fabric, Inc