Edgar Ltd. is looking at implementing a new costing system to refine its support department allocations. The company currently has four support divisions: Accounting (Acctg), Research & Development (R&D), Human Resources (HR) and Information Technology (IT). It has two operating divisions: Central and Western. In an effort to improve its costing, Edgar wishes to implement reciprocal cost allocation. The following table summarizes information on the cost pools and usage:
Operating costs of the Central and Western Divisions are $1,200,000 and $750,000 respectively.
Required:
a. Use the matrix algebra function in Excel to calculate the inverse of the coefficient matrix for support divisions.
b. Multiply the inverse of the coefficient matrix by the vector of constants to obtain the artificial costs.
c. Calculate the allocation of costs to the support and operating departments.
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