This means service department costs are allocated to and from the other service departments. Given advances in computing power, the reciprocal method would seem to be accessible to many companies that are not using it. Presumably, these companies believe that the benefits obtained from more accurate service department cost allocations do not justify the costs required to implement the reciprocal method. This process continues through multiple rounds until the balance in S1 is immaterial. We stopped at the sixth round, where the balance of S1 was $0.0003 (cell C23).

  1. It is also the most complicated method, because it requires solving a set of simultaneous linear equations.
  2. It requires that students use a summarizing strategy to pick out the main idea and key points of the text.
  3. If the internal cost for a service is greater than the price charged by an external supplier, the service department could be considered for elimination.

Total maintenance cost can be calculated as $8,000 department cost + $1,429 (7,145 x 20%) allocated from administration for a total of $9,429. The total cost for the data processing department is $271,429 and for the human resources department it’s $214,286. Both costs aptly reflect all interactions between the two support departments. The custodial services department allocates its costs based on square footage. Assembly occupies 3,000 square feet, accounting for 71 percent of the square footage used to allocate costs.

Multiplying a Number by Its Reciprocal

The $100 direct cost of S1 is allocated using 500 direct labor hours, with 100, 250, and 150 direct labor hours consumed by S2, P1, and P2, respectively. S2’s direct cost of $40 is allocated using 1,000 machine hours, with 500, 100, and 400 machine hours consumed by S1, P1, and P2, respectively (see Figure 1). The direct method allocates costs to the operating departments directly, with no allocations to the other service departments. The method is easy to implement, but it ignores the fact that other service departments require services from each other, so it’s less accurate. Fully reciprocated custodial services costs to be allocated to production departments, as calculated above, equal $90,679.

Advantages and disadvantages of reciprocal or algebraic method

You will need to determine the TOTAL cost
being allocated to both the Administration and Maintenance
Departments first. The human resources department allocates its costs based on the number of employees. Assembly has 10 employees, accounting for 67 percent of the employees used to allocate costs. Painting has three employees, accounting for 20 percent of the employees used to allocate costs.

It is also the most complicated method, because it requires solving a set of simultaneous linear equations. The Reciprocal Method is the most accurate and comprehensive of the service department cost allocation methods, but it’s also the most complex. The basic premise is to account for the interaction between service departments and not simply ignore the services they provide to each other. In the reciprocal method, the relationship between the service departments is recognized.

Example: the reciprocal of 2 is ½ (a half)

Costs may be allocated between service departments which is useful because it provides insight into overhead costs. The method is also the most accurate method of cost allocation available to accountants. Additionally, it is thorough, and it allows quick comparison of company departments. P1’s allocated cost is 50% of S1’s cost and 10% of S2’s cost, and P2’s allocated cost is 30% of S1’s cost and 40% of S2’s cost. S1’s reciprocated cost is 50% of S2 and its own direct cost of $100, and S2’s reciprocated cost is 20% of S1’s cost and its own direct cost of $40.

1) The point of allocating service department costs to operating (product departments) is to recognize the full costs of the operating departments. 2) The direct method and step-down method have no advantages over the reciprocal method except for their simplicity, and the step-down method is sometimes not very simple. In this case, the cost allocations are not very different under each method.

This means service department costs are
allocated to and from the other service departments. There are a few generally used methods to allocate service costs among the various departments that use the services. Of these methods, the https://personal-accounting.org/ is the most complex, but it is also the most accurate. Other names for the reciprocal method are simultaneous solution method, cross allocation method, matrix allocation method and double distribution method. Reciprocal method is a method of allocating service department costs to other departments that gives full recognition to interdepartmental services.

Reciprocal Method Cost Allocation: Advantages and Examples

Second, the step method usually provides results that are a reasonable approximation of the results that the reciprocal method would provide. Thus, companies have little motivation to use the more complex reciprocal method. For any negative number -x, the reciprocal can be found by writing the inverse of the given number with a minus sign along with that (i.e) -1/x. Go through the following steps to find the reciprocal of the negative number. If you’re wondering how to find the reciprocal, we’re here to help with this easy-to-use reciprocal calculator. Below, you can find an explanation of what a reciprocal is and examples of how to calculate and find reciprocals, be it the reciprocal of a fraction or a number.

Finally, after finishing the story, guide the students through the summarizing process. Help them identify the main idea and key points with the following questions. The reciprocal of a fraction can be determined by interchanging the values of the numerator and denominator. The resultant number obtained from both methods will result in the same value. The most important application of reciprocal is used in division operation for fractions.

It is also expressed by the number raised to the power of negative one and can be found for fractions and decimal numbers too. You find the inverse of a fraction by exchanging the numerator (top number) with the denominator (bottom number) – taking the reciprocal of the fraction. Additionally, our reciprocal calculator will show you the fraction in its simplified form. A reciprocal in math is one divided by the number in question (also known as the multiplicative inverse).

Comprehension problems may arise due to difficult words in the text, but they can also result from students being unable to identify the main idea or key points of the passage. The strategies used in reciprocal teaching (sometimes called the “Fab Four”) are summarizing, questioning, predicting, and clarifying. The strategies work in tandem to dramatically increase comprehension. The reciprocal teaching technique was developed in the 1980s by two University of Illinois educators (Annemarie Sullivan Palincsar and Ann L. Brown).

For this example, the two service departments of human resources and custodial services provide services to each other as well as to the production departments of assembly and painting. The situation would be different if one service department consumed a lot of a second service department, and that first service department primarily served a single operating department. Determine the total cost of support departments so that the total cost reflects interaction with other support departments. In the example, the human resources (HR) department receives 20 percent of data processing (DP) services, and data processing receives 10 percent of human resources output. In the consecutive period, the HR costs were $160,000 and DP costs were $250,000.