A firm that manufactures specialized scientific equipment, Nominal Engineering Inc. (NEI), has decided to implement a new costing system to more accurately allocate its support costs. The company anticipates this will improve the competitiveness of its bids for design contracts and provide solid justification when it claims reimbursement for contracted costs. NEI has four support divisions: Engineering (design), Accounting, Information Systems (IS), and Human Resources Administration (HR). NEI’s two operating divisions are geographically separate. One is national and the other international. The table summarizes the five cost pools and the percentage of costs allocated to each division. The four support divisions are interdependent and each uses the resources of the others. Because the goal of NEI is improved accuracy of cost allocation, the top management team decides to use the reciprocal cost allocation method for the support division costs. The table summarizes the cost pools and the percentage of each cost pool to be allocated to each division. The cost pools are reported in millions of dollars.
1. Use the matrix algebra function in Excel to calculate the inverse of the coefficient matrix for support divisions.
2. Multiply the inverse of the coefficient matrix by the vector of constants to obtain the artificial costs.
3. Calculate the allocation of costs to the support divisions and the two operating divisions.

  • CreatedJuly 31, 2015
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