The following set up 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 Reality Company. Use of services by other departments is as follows. The equation for department S1 (building occupancy)is:
A)S1 = .10S3.
B)S1 = $85,000 + 1.00S3.
C)S1 = $85,000 + .10S3.
D)S1 = $85,000 + .90S2 + .10S3.

Question

The following set up 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 Reality Company.  Use of services by other departments is as follows.  The equation for department S1 (building occupancy)is:
A)S1 = .10S3. 
B)S1 = $85,000 + 1.00S3. 
C)S1 = $85,000 + .10S3. 
D)S1 = $85,000 + .90S2 + .10S3.

Quizplus · Accepted Answer

According to the reciprocal method, the total cost of each service department will be allocated to other departments based on their usage percentage.
From the given matrix, we can see that the usage percentage of department S3 by department S1 is 10% (0.10).
Therefore, the equation for department S1 would be:
S1 = $85,000 + 0.10S3 (option C)

The Following Set Up Is a System of Simultaneous Linear