Reciprocal cost allocation (continuation of 14-21). Consider e-books again. The con¬

troller reads a widely used text that states that “the reciprocal method is conceptually the most defensible.” He seeks your assistance.

Required 1. Describe the key features ofthe reciprocal cost-allocation method.

2. Allocate the support department costs (administrative and information systems) to the two revenue-producing departments using the reciprocal allocation method. Use five decimals to reduce rounding error.

3. Under what conditions is the reciprocal method more accurate than the direct and step-down methods? In the case presented in this problem, which method would you recommend? Why?