The Following Set Up Is a System of Simultaneous Linear

question 130

Multiple Choice

The following set up 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. $$\begin{array} { | l | r | r | } \hline \text { Department } & \text { Drect Costs } & \text { Label } \\\hline \text { Subassemblies } & \$ 550,000 & \mathrm { P } 1 \\\hline \text { Final assembly } & 776,000 & \mathrm { P } 2 \\\hline \text { Marketing } & 285,000 & \mathrm { P } 3 \\\hline \text { Building occupancy } & 85,000 & S1 \\\hline \text { Research\&development } & 120,000 & \mathrm {~S} 2 \\\hline \text { Supervision } & 45,000 & \mathrm { S3 } \\\hline\end{array}$$ Use of services by other departments is as follows. The equation for department S3 (supervision) is:

• A) S3 = $45,000 + .90S1 + .10S2.
• B) S3 = $45,000 + .10S1.
• C) S3 = $45,000 + 1.00S1.
• D) S3 = .10S1.

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Definitions:

Departmental Predetermined Rate

A rate used to allocate overhead costs to products or services, calculated in advance and based on the estimated costs and activity levels of a specific department.

Assembly Department

A segment in manufacturing where components are assembled into finished products.

Machine-Hours

The total number of hours that machines are operated in the manufacturing process.

Estimated Total Overhead

The projected sum of all overhead expenses, both fixed and variable, for a specific period.