Vision books, an online book retailer, has two operating departments corporate sales and consumer sales and two support departments human resources and information systems.

Each sales department conducts merchandising and marketing operations independently. Vision Books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Vision Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance.

	Support Departments		Operating Departments
	Human Resources	Information Systems	Corporate Sales	Consumer Sales
Budgeted costs incurred before any interdepartment cost allocations	$90,000	$227,000	$995,000	$481,000
Support work supplied by human resources department
Budgeted number of employees		20	44	36
Support work supplied by information systems department
Budgeted processing time (in minutes)	400		2,520	1,080

	Support Departments		Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$90,000	$227,000	$995,000	$481,000	$1,793,000
Allocation of HR costs	(90,000)		49,500	40,500
Allocation of Info. Systems costs		(227,000)	158,900	68,100
Total budgeted costs of operating departments	$0	$0	$1,203,400	$589,600	$1,793,000

	Support Departments		Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$90,000	$227,000	$995,000	$481,000	$1,793,000
Allocation of HR costs	(90,000)	18,000	39,600	32,400
	$0	245,000
Allocation of Info. Systems costs		(245,000)	171,500	73,500
Total budgeted costs of operating departments		$0	$1,206,100	$586,900	$1,793,000

*Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000.

1.	Describe the key features of the reciprocal method.
2.	Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
3.	In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?