approximate method for the allocation of reciprocal service costs

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Gresham College , London
Statementby Dermot P. French and Albert H. Russell.
SeriesCity University Business School. Working paper -- 22, Working paper series (City University (London, England). Business School) -- no. 22.
ContributionsRussell, Albert H.
The Physical Object
Pagination(2), 23 leaves
ID Numbers
Open LibraryOL20155056M

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.

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

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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. Fully reciprocated custodial services costs to be allocated to production departments, as calculated above, equal $90, The assembly department allocation equals 71 percent of $90, which is $64, The painting department allocation equals 19 percent of $90, which is $17, 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. There are three methods for allocating service department costs: The first method, the direct method, is the simplest of the three.

The direct method allocates costs of each of the service departments to each operating department based on each department’s share of the allocation base. Services used by other service departments are ignored. Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center.

owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: permissible cost-allocation bases D) All of these answers are correct.

Describe the key features of the reciprocal method. † The reciprocal allocation method explicitly includes the mutual services provided among all support departments.

† Interdepartmental relationships are fully incorporated into the support department cost allocations allocations. 21 2. Methods of Allocating Costs - Overview 1. Review the three Method of Allocating Costs. - Direct Method - Step Down Method - Reciprocal Method 2. Discuss the strengths and weaknesses of each method 3.

Winery Problem – platform for discussing Joint Cost Allocations 4. Review remaining cost allocation problems. Summarize and Review. This is known as allotment of reciprocal services or re-apportionment method. Types: There are number of ways in which allocated and apportioned overheads are allotted to producing department and all of them approximately show the same results.

Following methods may be used to allocate service department costs to producing department. USING SPREADSHEET SOFTWARE TO TEACH THE RECIPROCAL METHOD OF SERVICE DEPARTMENT COST ALLOCATION Accounting textbooks typically cover three methods for allocating service department costs: (1) the direct method, (2) the step-down or sequential method and (3) the reciprocal method.

The analysis is based on data from a previous study. 7 The article includes a description of cost allocation methods proposed in the literature, a review of our methodology and a discussion of the main results and limits of the study. Components of Cost Allocation Methods Centres of Activity and Choice of Units of MeasurementCited by: May 17,  · The step allocation method is an approach used to allocate the cost of the services provided by one service department to another service department.

The essential steps in this allocation process are: The service department that provides service to the largest number of other service departments or which has the largest percentage of its costs consumed by other service.

CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES The single-rate (cost-allocation) method makes no distinction between fixed costs and variable costs in the cost pool. It allocates costs in each cost pool to cost objects using the same rate per unit of the single allocation base.

Use recommended guidelines to charge the variable and fixed costs of service departments to other organizational units. Identify methods for allocating the central costs of an organization.

Details approximate method for the allocation of reciprocal service costs FB2

Use the direct, step-down, and reciprocal allocation methods to allocate service department costs. A type of cost allocation method (allotment of non-reciprocal service method) in which the usual procedure is to close out costs of the service departments in accordance to the level of services rendered by them.

In other words, the costs of the service departments rendering the services to the greatest number of other service departments are.

Which of the following is a weakness of the step method of service cost allocations. Computations are more complex than the reciprocal method. All interdepartmental services are ignored. All intradepartmental services are ignored. The order of service department allocation has to.

The reciprocal distribution method of cost allocation solves one of the primary issues in cost allocation: how to allocate costs between service departments. This lesson teaches how to use the method.

Feb 01,  · Description. Lattice allocations can be beneficially applied to any type of allocation, but it is most beneficial when current methods for implementing the allocation are complex, such as when there is a hierarchy of allocations (as in two-stage activity-based costing) or when there are reciprocal relationships (as often occurs in service department cost Cited by: 2.

Reciprocal service department cost allocation and decision making Article (PDF Available) in Journal of Applied Mathematics and Decision Sciences (3) · January with Reads.

A knowledgeable professional assigned to evaluate the probable cost of projects. Parametric Estimate – A method of estimating the cost of a project (or part of a project) based on one or more project-based cost factors. Historical bid data is commonly used to define parameters related to the cost of a typical transportation facility construction.

ADVERTISEMENTS: In this article we will discuss about the re-apportionment of service centre costs. Also learn about the methods generally used in allocation of service department costs.

Service departments may exist to provide services of various kinds to other departments. For example, personnel, maintenance, boiler house, pump house, power generation departments are service departments.

Which of the following methods would be of little use when allocating service department costs to production departments. The direct method. The net-realizable-value method.

The dual-cost allocation method. The step-down method. The reciprocal method. May 01,  · There are three methods for allocating service department costs: direct, sequential, and reciprocal. The first step of each method is to classify each organizational unit as either an operating or service department.

reciprocal allocation method process of allocating service department costs to production departments, where reciprocal services are allowed between service departments; also known as the reciprocal method, the matrix method, the double-distribution method, the cross-allocation method, and simultaneous equation method.

Oct 18,  · Cost allocation methods are used to resolve the accounting problem that specific costs do not always match specific outputs such as products or services. Different cost allocation methods can involve basing the allocation on time, physical measures such as staffing costs, or on output.

Allocation Methods Mechanically, cost allocation can be accomplished in a variety of ways. Regardless of the method, all overhead costs must ultimately be allocated to the departments that create the need for such costs, which are the.

patient service departments. There are several allocation methods: z. Direct method. Step-down method. The Reciprocal Method: The reciprocal method is the most accurate of the three methods for allocating service department costs, because it recognizes reciprocal services among service departments.

It is also the most complicated method, because it requires solving a.

Description approximate method for the allocation of reciprocal service costs FB2

Unformatted text preview: 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 assistance.

E-books uses number of employees to allocate HR costs and processing time to allocate Info Systems costs%(9).Using Excel's Matrix Operations to Facilitate Reciprocal Cost Allocations Wallace R. Leese, California State University, Chico, USA Tim Kizirian, California State University, Chico, USA ABSTRACT The reciprocal method of service department cost allocation requires .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.