The Following Is a System of Simultaneous Linear Equations to Allocate

question 50

Multiple Choice

The following 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 Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } &\$ 5 5 0 , 0 0 0 & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S3 }\end{array}$$
Use of services by other departments is as follows.

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The equation for department P2 (final assembly) is:

• A) P2 = 0.25S1 + 0.50S2 + 0.30S3.
• B) P2 = $775,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
• C) P2 = $775,000 + 0.30S1 + 0.50S2 + 0.20S3.
• D) P2 = $775,000 +0.25S1 + 0.50S2 + 0.30S3.

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Definitions:

Globally

Refers to an action or concept considered or applied worldwide.

Petty Cash

A small amount of cash on hand used for covering minor and incidental expenses in an organization.

Payment

The act of transferring money or its equivalent in exchange for goods or services.

Postage Stamps

Adhesive paper evidence of prepayment for postal services, used to send letters and packages.