The Following Is a System of Simultaneous Linear Equations to Allocate

question 29

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.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \$ 5 5 0 , 0 0 0& \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S 1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.

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The equation for department S1 (building occupancy) is:

• A) S1 = 0.10S3.
• B) S1 = $85,000 + 1.00S3.
• C) S1 = $85,000 + 0.10S3.
• D) S1 = $85,000 + 0.90S2 + 0.10S3.

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Definitions:

Quasi-Contract

A legal concept where a court imposes a contractual obligation on one party to prevent unjust enrichment at the expense of another party.

Indemnity

A contractual obligation of one party to compensate for the loss or damage incurred by another party.

Wager

An agreement between two parties where the outcome of a specified event leads to the transfer of something of value from the loser to the winner.

Binding Contract

A legal agreement between parties that is enforceable by law, requiring all signatories to fulfill their respective obligations.