Requirement 1. Describe the key features of the reciprocal method.

The reciprocal allocation method explicitly includes the mutual services provided

among all support departments

. Interdepartmental relationships

are

fully incorporated into the support department cost allocations.

Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method.

Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support departments' costs. (Abbreviations used: HR = human resources; IS = information system.)

	Support Departments		Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$75,000	$230,000	$996,000	$486,000	$1,787,000
Allocation of HR costs	(75,000)		45,000	30,000
Allocation of Info. Systems costs		(230,000)	184,000	46,000
Total budgeted costs of operating departments	$0	$0	$1,225,000	$562,000	$1,787,000