#9 Support Department Cost Allocation Using the Algebraic or Reciprocal Method

The algebraic or reciprocal method takes full account of support department reciprocity. This method requires the solution of a system of simultaneous equations to determine the total support department costs to be allocated. In practice, relatively few companies use the reciprocal method.

Let's use Anders Company, as an example. Anders has two producing departments - Cutting and Sewing - and two support departments - Maintenance and General Factory (GF). Anders provided the following information on the four departments:

	Maintenance	GF	Cutting	Sewing
Direct overhead cost	$100,000	$270,000	$56,400	$75,000
Machine hours	459	2,000	9,000	9,000
Square footage	2,500	3,418	5,000	8,500

Anders uses the algebraic method of support department cost allocation. Maintenance is allocated based on machine hours, and GF on the basis of square footage.

Calculate the allocation ratios to five significant digits and fill them into the following table (Use the rounded values in the subsequent requirements. enter "0", if a support department is not allocated to another support department - for example, General Factory is not allocated to General Factory):

	Maintenance	GF	Cutting	Sewing
General Factory
Maintenance

Using the allocation ratios, solve a system of simultaneous equations for support department cost as follows.