The Following Is a System of Simultaneous Linear Equations to Allocate

question 35

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.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \$ 5 5 0 , 0 0 0 & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.

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The equation for department P3 (marketing) is:

• A) P3 = $285,000 + 0.20S1 + 0.20S3.
• B) P3 = $285,000 + 0.20S1 + 0.60S2 + 0.20S3.
• C) P3 = $285,000 + 0.20S1 + 0.20S2 + 0.60S3.
• D) P3 = $285,000 + 0.50S1 + 0.50S3.

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Definitions:

Fair Value Through Profit

A financial accounting treatment where changes in fair value of assets or liabilities are recorded in the profit or loss for the period.

Short-Term Investments

Investments that are expected to be converted into cash within one year and are often seen in the form of stocks, bonds, or certificates of deposit held by a company.

Trading Investment

Securities purchased by a company not for long-term holding but rather for generating profit from short-term price fluctuations.