Accounting For Management

Home » Explanations » Service department costing » Reciprocal (algebraic) method of cost allocation

  • Reciprocal (algebraic) method of cost allocation

The allocation of service department costs is incomplete if the method used for cost allocation ignores or does not give full recognition to interdepartmental services. Interdepartmental services are services that two or more service departments provide to each other. For example, consider a case where service department A provides service to service department B, and in turn, department B provides service to department A.

If you have already studied  direct method and step method of cost allocation you may have noticed that the direct method completely ignores the interdepartmental services and step method gives them only a partial recognition because it allocates costs forward – never backward. To overcome this problem, a method known as  reciprocal method  is used which fully recognizes interdepartmental services and provides greater exactness in allocating the cost of a service departments to other departments. The reciprocal method uses the simultaneous equations technique and is therefore also referred to as simultaneous equations method and algebraic method of departmental cost allocation.

A company has two service departments and two producing departments. The two service departments provide service not only to two producing departments but also one another. The costs of four departments and relationship among them is shown below:

cost allocation reciprocal method

Required: Allocate the cost of service departments to producing departments using reciprocal/algebraic method.

Y = $7,260 + 0.3Z —— Eq.1 Z = $4,000 + 0.2Y —— Eq.2

Substituting the value of Z in equation 1:

Y = $7,260 + 0.3($4,000 + 0.2Y) Y = $7,260 + $1,200 + 0.06Y Y – 0.06Y = $7,260 + $1,200 0.94Y = $8,460 Y = $8,460/0.94 Y = $9,000

Substituting the value of Y in equation 2:

Z = $4,000 + 0.2(9,000) Z = $4,000 + $1,800 Z = $5,800

Distribution summary:

cost allocation reciprocal method

Advantages and disadvantages of reciprocal or algebraic method

The major advantage of reciprocal or algebraic method is that it fully takes into account the interdepartmental services. It is therefore considered a more accurate method than  direct and step method  for departmental cost allocation.

The major disadvantage of reciprocal method is that it is more complex when compared with direct and step method. The use of a computer software could solve the complexity issue involved in this method but there is no sufficient evidence that this solution has significantly increased the popularity of reciprocal method. Moreover, the step method produces results that are usually close to the results produced by complex reciprocal or algebraic method.

I am happy for the explanation thank more lwill see..next

The work on advantage and disadvantage in good but too brief

Leave a comment Cancel reply

Appendix: Service Department Allocation

Reciprocal method of allocation.

The final method, is the reciprocal method.  Although it is the most accurate, it is also the most complicated.  In the reciprocal method, the relationship between the service departments is recognized.  This means service department costs are allocated to and from the other service departments.

We can break the process up into 3 steps so we can make sense of the process.  To demonstrate, we will use the same basic data:

Step 1:  Determine allocation bases

Just like you would for direct or step,we need to calculate the allocation base EXCEPT the only thing you are excluding is the department cost you are trying to allocate — ALL other departments are included.  We can calculate the allocation base amount for each service department as follows:

**since these numbers do not come out evenly, we keep them in the fraction form and only round the final answer to the nearest dollar.

Step 2:   Setup the formulas. 

Since maintenance costs are allocated to administration and administration cost is allocated to maintenance — things get interesting.  You will need to determine the TOTAL cost being allocated to both the Administration and Maintenance Departments first.

(a) Total Maintenance cost = Maintenance department cost + cost allocated to maintenance from administration.

(b) Total Administration cost = Administration department cost + cost allocated to administration from maintenance.

We will work with the administration cost formula in (b) first:

Total Administration cost = Administration department cost + cost allocated to administration from maintenance.  From step 1, we know the cost allocation to administration from maintenance is (2/6 x total maintenance cost).  We still do not know what total maintenance cost but we can plug in this new formula.

Total Administration cost = $ 4,000 administration department cost + (2/6 x total maintenance cost)

We can insert the formula from (a) for total maintenance cost into the total administration cost formula (b) as follows:

Total Administration cost = $4,000 admin department cost + [2/6 x (Maintenance department cost + cost allocated to maintenance from administration) ]

We can see from step 1 that administration cost is allocated to maintenance as total administration cost x 20%.  Adding this to our formula, we now have:

Total Administration cost = $4,000 admin department cost + [2/6 x ($8,000 Maintenance department cost + (total admin cost x 20%) ) ]

Using algebra, we can assign Total Administration Cost a variable of A giving the formula:

A = 4,000 + [ 2/6 x ($8,000 + 0.20)A]

A = 4,000 + (2/6 x 8,000) + (2/6 x 0.20A)

A = 4,000 + 2,666.67 + 0.067A — rounded

A = 6,666.67 + 0.067A

1.0A – 0.067A = 6,666.67

0.933A = 6,666.67

A or total administration cost = $7,145 rounded

Total maintenance cost can be calculated as $8,000 department cost + $1,429 (7,145 x 20%) allocated from administration for a total of $9,429.

Step 3:  Show cost allocations

Now that you have the TOTAL Cost of Maintenance and Personnel, it is time to allocate it using the Total Cost amounts from Step 2 and the percents from Step 1.

** difference due to rounding in calculations.

What Are the Three Methods of Cost Allocation? (Explain and Example)

Service departments incur expenditures passed on to the operating departments, as those services aid the operating departments. Management, administrations, cafes, laundry rooms, and processing are just a few of the service departments that exist. At the same moment, service departments help various manufacturing units, and accounting professionals must distribute and explain all the expenditures associated with this assistance. The service department expenditures must be assigned to the operational departments for production costs in the operating departments to be explicitly and correctly represented.

Accounting professionals assign service department expenses based on a predetermined foundation. When the management of the firms decide which foundations to employ, they consider various factors such as the sorts of services offered, the advantages obtained, and the impartiality of the distribution system. The percentage of workers, machine hours, labor costs, space area, and power consumption are examples of grounds employed to apportion service department expenses.

Direct Method

A firm generates various expenses that can be assigned to a specific “cost item” — such as a commodity, program, function, or service. These costs include anything from mop floors to functional equipment. You should, however, generate enough income to pay such corporation overhead expenditures. This means that revenue must surpass total costs. The direct allocation technique is one of numerous cost allocation strategies used to allocate indirect costs to activities. It is one of the most often used techniques.

The direct technique is the easiest in terms of cost allocation, even though it has several shortcomings.  Nevertheless, because of its simplicity of using it, it became one of the most widely applied cost allocation techniques in recent years. In a nutshell, it assumes that service departments do not give facilities or services to each other, and it merely distributes the service departments’ costs in the company’s manufacturing departments. 

The Way it Works

Pros and cons of the direct method.

The direct allocation technique is very straightforward to implement, but it is ideal for writing off all indirect expenses as department expenditures rather than distributing them to cost components. Although indirect allocation can produce more accurate results, it is more time-consuming than the direct allocation technique regarding the accounting effort involved. The direct method is intended to remind production management that services such as information technology and repair are not “free of cost” but are included in the cost of the goods and services provided.

Step Method of Cost Allocation

The step technique of distributing service department expenses is the second way of allocating costs. As part of a sequential process, service expenses are allocated to operational departments and other service departments by using this approach. The following are the critical phases in the allocation process:

Limitations of the Step Allocation Method

Advantages of step allocation method, reciprocal method of cost allocation.

Unless cross-departmental services are fully recognized and included in the cost allocation technique, the distribution of service department expenses is seriously compromised. In the service sector, cross-departmental services are services offered by two or even more service departments to one another. Take the following scenario: service department 1 gives service to service department 2, and department 2, in turn, offers service to service department 1.

Indirect cost allocation disregards cross-departmental operations, whereas the step approach only partially acknowledges them because it assigns costs forward – not reverse – in the process of cost allocation. Fortunately, a concept designed as the reciprocal approach has been developed to address this issue. This technique properly acknowledges cross-departmental services while also providing more precision in distributing the costs of service departments to certain other departments.

Use of Reciprocal Approach of Cost Allocation

Benefits of reciprocal cost allocation method.

The goal of cost allocations in the services team should be to have correct prices on products, services, and customer interactions. The choice of an allocation technique is essential in tracking expenses for many organizations, particularly those where the number of service departments and the prices and services supplied is growing rapidly. The most significant advantage of the reciprocal approach is that it fully includes the cross-departmental service. Consequently, it is a far more precise technique of distributing department expenses when compared to the other two approaches.

Importance of Cost Allocation

Consider the following scenario: you are working in the HR department for a firm and being summoned to the company owner’s room. According to reports, demand is low, and because the department does not generate any revenue, you are being requested to justify your department’s budget amounts. The only drawback is that you wouldn’t have much to report for your efforts in terms of financial gain. So, how can you communicate to your colleagues precisely what more value your department brings to the organization? In a nutshell, cost allocation is a method of passing expenses forward to others.

Which Method to Use?

Related posts, understanding goodwill in balance sheet – explained, income statement under absorption costing (all you need to know), what is activity-based costing and how does it work (explained), what is the rule 407 letter – definition, explanation, example, and more.

Study.com

In order to continue enjoying our site, we ask that you confirm your identity as a human. Thank you very much for your cooperation.

Accounting Details

Reciprocal method of cost allocation – service department costing, definition:.

Reciprocal method is a method of allocating service department costs to other departments that gives full recognition to interdepartmental services.

Explanation:

The reciprocal method gives full recognition to interdepartmental services. Under the step method, only partial recognition of interdepartmental services is possible. The step method always allocates costs forward never backward. The reciprocal method, by contrast, allocates service department costs in both directions. The reciprocal allocation requires the use of simultaneous equations. This method is also known as algebraic method and simultaneous equations method .

Under this method the true cost of the service departments are computed first with the help of simultaneous equations and these are then distributed to producing departments on the basis of given percentage or ratio. Remember that true cost of the service department means the cost of the service department which includes original cost of the department plus the share of the other service department. The main advantage of this method is to have an accurate distribution in a single step in the distribution summary.]

reciprocal method Cost

A company has two service and two producing departments. The two service departments serve not only to producing departments but also to each other. The departmental estimates for the next year are as follows.

Use of Reciprocal Method:

This method is rarely used in practice for two reasons. First, the computations are relatively complex. Although the complexity issue could be overcome by use of computers, there is no evidence that computers have made the reciprocal method more popular. Second, the step method usually provides results that are a reasonable approximation of the results that the reciprocal method would provide. Thus, companies have little motivation to use the more complex reciprocal method.

You may also be interested interested in other articles from “service department costing” chapter:

About The Author

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

How to Calculate Reciprocal Method Costing

by NevilleP

Published on 26 Sep 2017

Cost allocation can be carried out using three methods: the direct method, the sequential method and the reciprocal method. The three methods differ in the manner by which costs are split among the producing departments. There is absolutely no doubt that no matter which method is used, total overhead costs remain unchanged. The reciprocal method recognizes the reciprocal services provided by support departments to other support departments; in other words, it gives full recognition to interdepartmental services. The method is also known as the simultaneous equation method, or the algebraic method.

Cost information

Determine the total cost of support departments so that the total cost reflects interaction with other support departments. In the example, the human resources (HR) department receives 20 percent of data processing (DP) services, and data processing receives 10 percent of human resources output. In the consecutive period, the HR costs were $160,000 and DP costs were $250,000.

Form a simultaneous linear equation system. Each equation would be a cost equation for a support department. This will be the total of the department’s direct cost and the proportion of service received from the other department. In other words:

Total Cost = Direct Cost + Allocated Cost.

Substitute the data from the example into the equation. Thus ...

DP = $250000 + 0.1HR and HR = $160000 + 0.2DP.

Solve the above mentioned simultaneous equations. Hence,

HR = $160000 + 0.2DP HR = $160000 + 0.2 ($250000 + 0.1HR) HR =$160000 + $50000 + 0.02HR 0.98HR = $210000 HR = $214286

DP = $250000 + 0.1HR DP = $250000 + 0.1 ($214286) DP = $250000 + $21429 DP = $271429

Analyze your findings. The total cost for the data processing department is $271,429 and for the human resources department it's $214,286. Both costs aptly reflect all interactions between the two support departments.

The method is rarely used, as the math and computation can become complex.

AccountingTools

Accounting CPE Courses & Books

Cost allocation methods

Related courses.

Accounting for Inventory

Activity-Based Costing

Cost Accounting Fundamentals

How to Allocate Costs

Various cost allocation methods are used to allocate factory overhead costs to units of production. Allocations are performed in order to create financial statements that are in compliance with the applicable accounting framework. The most common allocation methods are noted in the following bullet points, along with commentary about their advantages and disadvantages.

Cost Allocation Based on Direct Labor

Overhead is applied based on the amount of direct labor consumed by a unit of production. This is an easy calculation, for there is usually an industrial engineering standard already in place that documents the amount of direct labor associated with a product. However, the amount of direct labor consumed may be far smaller than the amount of factory overhead, which can result in large allocations based on small amounts of direct labor cost. This can cause large swings in cost allocations if direct labor totals change by only a small amount.

Cost Allocation Based on Machine Time

Another favorite is cost allocations based on the amount of machine time used by a product. As was the case for direct labor, the reason for this popularity is that the standard amount of machine time used is already available in the form of industrial engineering documentation.

Cost Allocation Based on Square Footage

It may be useful to separate out those overhead costs related to inventory storage, and allocate these costs based on the number of square feet of storage space used by each product. While this is a more accurate way to associate certain overhead costs with products, it can be difficult to track, especially when inventory levels are constantly changing. Another concern is that square footage is only two dimensional. A more accurate approach would be to allocate costs based on cubic feet of storage space consumed.

Allocation of Corporate Costs

It is also possible that corporate headquarters costs are to be allocated to the subsidiaries of a multi-division company. If so, a number of possible allocation methods have been used, including the following:

Cost Allocation Based on Sales

Costs are apportioned based on the net sales reported by each entity. Since high sales volume does not necessarily equate to high profits, this approach can result in a low-profit entity being burdened with a substantial corporate allocation.

Cost Allocation Based on Profits

Costs are allocated based on the profits generated by each subsidiary. A problem is that high-profit entities will be charged with the bulk of all corporate expenses, so their inherent profitability will not be overly apparent when their results are viewed on a fully-burdened basis.

Cost Allocation Based on Headcount

This is the most specious basis of allocation, for some entities can generate sales and profits with few staff, while others require massive numbers of employees. Also, a large number of low-paid employees might attract a large cost allocation, while another subsidiary with a much smaller number of higher-paid employees would attract a comparatively smaller charge.

When deciding upon which cost allocation method to use, keep in mind that none of these methods will achieve a close relationship between the allocated costs and the cost objects to which they have been applied. Consequently, it is best to use the simplest method available, and not worry about a high level of allocation precision.

College Textbooks

Accounting Books

Finance Books

Operations Books

CPA Exam Study Guides

Copyright 2023

azcentral

The Reciprocal Method of Cost Accounting

In a manufacturing business, one or more service departments often provide services to one or more production departments and also to other service departments. These costs, which are included in indirect overhead, must be allocated to the departments that use those services. Examples of service departments are human resources, accounting, information technology and custodial services.

Reciprocal Method

There are a few generally used methods to allocate service costs among the various departments that use the services. Of these methods, the reciprocal method is the most complex, but it is also the most accurate. Other names for the reciprocal method are simultaneous solution method, cross allocation method, matrix allocation method and double distribution method.

Determining a Cost Allocation Base

Because indirect overhead costs cannot be easily traced to cost objects -- products, processes, employees, departments, facilities, etc. -- an allocation base must be determined. Commonly used criteria for determining an allocation base include cause and effect and benefits received. An allocation base for custodial services could be square footage of each department. An allocation base for human resources could be the number of employees in each department.

Using the Cost Allocation Base

For this example, the two service departments of human resources and custodial services provide services to each other as well as to the production departments of assembly and painting.

The human resources department allocates its costs based on the number of employees. Total human resources costs for the year are $150,000. Assembly has 10 employees, accounting for 67 percent of the employees used to allocate costs. Painting has three employees, accounting for 20 percent of the employees used to allocate costs. Custodial services has two employees accounting, for 13 percent of the employees used to allocate costs.

The custodial services department allocates its costs based on square footage. Total custodial services costs for the year are $70,000. Assembly occupies 3,000 square feet, accounting for 71 percent of the square footage used to allocate costs. Painting occupies 800 square feet, accounting for 19 percent of the square footage used to allocate costs. Human resources occupies 400 square feet, accounting for 10 percent of the square footage used to allocate costs.

Calculating Fully Reciprocated Costs

Since 13 percent of human resources service costs are allocated to custodial services, another service department, those costs will have to be re-allocated to the production departments. The same applies to the 10 percent of custodial services costs that are allocated to human resources. Therefore, it is necessary to calculate fully reciprocated costs for each service department.

Using the data above, fully reciprocated human resources costs equal $150,000 + (fully reciprocated custodial services costs x 10 percent). Fully reciprocated custodial services costs equal $70,000 + (fully reciprocated human resources costs x 13 percent). Using this information, FRHRC and FRCSC can be calculated algebraically.

FRHRC = $150,000 + [($70,000 + FRHRC x 13%) x 10%]. FRHRC = $150,000 + [($70,000 + 0.13 x FRHRC) x 0.1] FRHRC = $150,000 + $7,000 + .013 x FRHRC 0.987 x FRHRC = $157,000 FRHRC = $159,068

FRCSC = $70,000 + (FRHRC x 13%). FRCSC = $70,000 + ($159,068 x 13%) FRCSC = $70,000 + $20,679 FRCSC = $90,679

Allocating Fully Reciprocated Costs to Production Departments

Now that the fully reciprocated costs of each service department have been calculated, the allocation for each production department can be completed.

Fully reciprocated human resources costs to be allocated to production departments, as calculated above, equal $159,068. The assembly department allocation equals 67 percent of $159,068, which is $106,575. The painting department allocation equals 20 percent of $159,068, which is $31,814.

Fully reciprocated custodial services costs to be allocated to production departments, as calculated above, equal $90,679. The assembly department allocation equals 71 percent of $90,679, which is $64,382. The painting department allocation equals 19 percent of $90,679, which is $17,229.

Total service costs allocated to assembly of $170,957 plus total service costs allocated to painting of $49,043 equal $220,000, which is the total of actual service department costs given in the example data above.

Dawn Aldridge has worked in accounting and business since 2004. Her diverse experience includes public, small business and government accounting, as well as logistics and inventory management. She holds an MBA from the University of Illinois at Springfield.

U.S. flag

An official website of the United States government

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

The site is secure. The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Save citation to file

Email citation, add to collections.

Add to My Bibliography

Your saved search, create a file for external citation management software, your rss feed.

Using reciprocal allocation of service department costs for decision making

Affiliation.

This article has provided a look into the use of the reciprocal method as an alternative to more conventional methods of hospital service department cost allocation methods. The reciprocal method can be used with readily available software and with data that are largely already known. This method will provide not only appropriate allocation values for financial reporting but data that can be used for hospital decision making. In the highly competitive and sometimes hostile environment in which hospitals now fight to survive, any additional relevant data--especially that generated at almost no additional cost--should be provided to managers to help in the decision-making process.

Similar articles

NCBI Literature Resources

MeSH PMC Bookshelf Disclaimer

The PubMed wordmark and PubMed logo are registered trademarks of the U.S. Department of Health and Human Services (HHS). Unauthorized use of these marks is strictly prohibited.

IMAGES

  1. Chapter 11 Cost Allocation (Reciprocal Method)

    cost allocation reciprocal method

  2. Reciprocal Method for Allocating Support Costs (how to solve without using linear equations)

    cost allocation reciprocal method

  3. Cost Accounting Problem 15-34 (Reciprocal Method & Iterations).mp4

    cost allocation reciprocal method

  4. PPT

    cost allocation reciprocal method

  5. Exercise 11-31 Cost Allocation: Reciprocal Method (LO 11-4) Caro Manufacturing has two

    cost allocation reciprocal method

  6. Support Cost Allocation Using Reciprocal Method (Cost Accounting Tutorial #38)

    cost allocation reciprocal method

VIDEO

  1. Sequential Costs Part I.mp4

  2. CE-414: Biaxial Bending in Short Columns

  3. COST AND REVENUE ESTIMATION FOR THE PROJECT

  4. #simplification#short tricks#reciprocal method#

  5. Support Is Reciprocal

  6. PROCESS COSTING

COMMENTS

  1. Reciprocal (algebraic) method of cost allocation

    The reciprocal method uses the simultaneous equations technique and is therefore also referred to as simultaneous equations method and algebraic method of departmental cost allocation. Example A company has two service departments and two producing departments.

  2. Reciprocal Method of Allocation

    Total maintenance cost can be calculated as $8,000 department cost + $1,429 (7,145 x 20%) allocated from administration for a total of $9,429. Step 3: Show cost allocations Now that you have the TOTAL Cost of Maintenance and Personnel, it is time to allocate it using the Total Cost amounts from Step 2 and the percents from Step 1.

  3. Reciprocal Method Cost Allocation: Advantages and Examples

    The reciprocal method of cost allocation uses algebra to capture and allocate 100% of service center (interdepartmental) costs. The mathematical tool required to perform the reciprocal...

  4. Reciprocal method definition

    February 26, 2023 What is the Reciprocal Method? The reciprocal method uses simultaneous equations to allocate the costs incurred by service departments to other departments; allocations are also made between the service departments. This method results in an accurate distribution of costs.

  5. PDF COST ALLOCATIONCOST ALLOCATION

    allocate Human Resources costs and processing time to allocate Information Systems costs. The following data are available for the year: 19 Reciprocal Cost Allocation Consider E-books again. The controller of E-books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your ...

  6. What Are the Three Methods of Cost Allocation? (Explain and Example)

    Three methods can do the cost allocation from the service department in the manufacturing department. Direct method Step method Reciprocal method Direct Method A firm generates various expenses that can be assigned to a specific "cost item" — such as a commodity, program, function, or service.

  7. Reciprocal Distribution Method of Cost Allocation

    A reciprocal distribution method is a form of cost allocation that accounts for services rendered between departments. Explore the equations associated with this method, and discover...

  8. Reciprocal Method of Cost Allocation

    Reciprocal method is a method of allocating service department costs to other departments that gives full recognition to interdepartmental services. Explanation: The reciprocal method gives full recognition to interdepartmental services. Under the step method, only partial recognition of interdepartmental services is possible.

  9. How to Calculate Reciprocal Method Costing

    Cost allocation can be carried out using three methods: the direct method, the sequential method and the reciprocal method. The three methods differ in the manner by which costs are split among the producing departments. There is absolutely no doubt that no matter which method is used, total overhead costs remain unchanged.

  10. PDF Using Excel's Matrix Operations to Facilitate Reciprocal Cost ...

    The reciprocal method of service department cost allocation requires linear equations to be solved simultaneously. These computations are often so complex as to cause the abandonment of the reciprocal method in favor of the less sophisticated and theoretically incorrect direct or step-down methods.

  11. Reciprocal Method for Allocating Support Costs (SHORTCUT ...

    This video shows how to use the Reciprocal Method allocate the costs of multiple support departments when the support departments provide services to each other. A shortcut for determining...

  12. Reciprocal Method of Allocation

    A or total administration cost = $7,145 rounded Total maintenance cost can be calculated as $8,000 department cost + $1,429 (7,145 x 20%) allocated from administration for a total of $9,429. Step 3: Show cost allocations

  13. Cost allocation methods

    Various cost allocation methods are used to allocate factory overhead costs to units of production. Allocations are performed in order to create financial statements that are in compliance with the applicable accounting framework. The most common allocation methods are noted in the following bullet points, along with commentary about their ...

  14. 14.4: Reciprocal Method of Allocation

    14.4: Reciprocal Method of Allocation. The final method, is the reciprocal method. Although it is the most accurate, it is also the most complicated. In the reciprocal method, the relationship between the service departments is recognized. This means service department costs are allocated to and from the other service departments.

  15. The Reciprocal Method of Cost Accounting

    Other names for the reciprocal method are simultaneous solution method, cross allocation method, matrix allocation method and double distribution method. Determining a Cost Allocation Base Because indirect overhead costs cannot be easily traced to cost objects -- products, processes, employees, departments, facilities, etc. -- an allocation ...

  16. Reciprocal Method for Allocating Support Costs (how to solve without

    This video shows how to use the Reciprocal Method to allocate the costs of multiple support departments when the support departments provide services to each...

  17. Exercise 11-32 (Static) Cost Allocation: Reciprocal Method (LO 11-4

    Exercise 11-32 (Static) Cost Allocation: Reciprocal Method (LO 11-4) - 5. Award: 0 out of 0 points - Studocu Learning Objective: 11- 04 Allocate service department costs using the reciprocal method. award: out of 0.00 points exercise (static) cost allocation: DismissTry Ask an Expert Ask an Expert Sign inRegister Sign inRegister Home

  18. What Is Cost Allocation? (Definition, Method and Examples)

    Using the number of units produced as the allocation method, they can calculate overhead costs using this formula: $4,000 / 5,000 = $0.80 per notebook When added to Polly's direct costs, the cost to produce each notebook is $5.80, calculated as follows: Direct materials: $3 per notebook Direct labor: $2 per notebook Overhead: $0.80 per notebook

  19. Using reciprocal allocation of service department costs for decision

    The reciprocal method can be used with readily available software and with data that are largely already known. This method wi … This article has provided a look into the use of the reciprocal method as an alternative to more conventional methods of hospital service department cost allocation methods.

  20. Solved Support department cost allocation—reciprocal

    Department cost. $33,120. $14,720. $66,000. $83,000. Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method. Cutting. Department.