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:

Common Stock

A type of security that signifies part ownership in a corporation, referred to as corporate equity ownership.

Par Value

The face value of a bond or stock as stated by the issuer, not necessarily its market value.

Transaction Fee

A charge assessed for processing a financial transaction, commonly found in banking and brokerage services.

Gain Or Loss

The financial result of selling an asset or investment for more or less than its purchase price, respectively.