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:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, culminating in the net income or loss for that period.

Average Rates

A method for determining a consistent rate over a specified period, often used in calculations regarding finance or foreign exchange.

Foreign Subsidiary

An overseas entity controlled by a parent company, engaging in business operations distinct from those of the parent company in its home country.

Functional Currency

The main currency used by a business or economy, where the majority of its transactions are conducted.