Reciprocal Method of Cost Accounting with a Matrix Algebra equation
Not what you're looking for?
Warren Ltd. has two production departments, Building A and Building B, and two service departments, Maintenance
and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments
for the month of June follow:
Proportion of Services Used by
Department Direct Costs Maintenance Cafeteria Building A Building B
Building A $ 505,000
Building B 315,000
Maintenance 217,000 â?" 0.2 0.6 0.2
Cafeteria 165,000 0.7 â?" 0.1 0.2
Required
Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Note: Due to rounding, the
cost allocations to the various departments may not add up to the total service department costs being allocated.)
Cost Allocated To:
From: Maintenance Cafeteria Building A Building B
Service Dept 217,000 165,000 0 0
Maintenance
Cafeteria
Total
Set up the equations:
Total service = Direct costs of the + Cost allocated
department costs service department to the service
department
S1 (Maintenance) = $217,000 + 0.70 S2
S2 (Cafeteria) = 165,000 + 0.20 S1
Substituting, the first equation into the second yields,
S2 = $165,000 + 0.20 ($217,000 + 0.70 S2)
S2 = $165,000 + $43,400 + 0.14 S2
.86S2 = $208,400
S2 = $242,326
I do not understand how S2 has been determined to be .86, can someone please explain it to me?
Purchase this Solution
Solution Summary
The following posting helps with a problem involving the reciprocal method for cost allocations.
Purchase this Solution
Free BrainMass Quizzes
Motivation
This tests some key elements of major motivation theories.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce