Alerting Students to the Dangers of Misstating Equations in the Reciprocal Method of Cost Allocation
Abstract
Cost accounting courses usually cover the direct, step-down and reciprocal (or simultaneous) techniques for cost allocation. In today’s technologically-oriented environment, it is often too tempting to leave the most difficult calculations to the computer. While this computer-default mode can pose little risk for many business calculations, this is not true for calculations involving the reciprocal cost allocation method. Students need to be alerted about the care that should be taken to ensure that the correct cost relationships are captured when the cost equations are specified. Once correctly specified, the equations can then be solved by computer, if desired. In this paper, examples are presented that demonstrate to students just how easy it is to misstate the cost equations and how data presentation techniques can be used to provide double-checks to ensure accurate answers when using the reciprocal method. In addition, an Excel iterative approach to the reciprocal method is demonstrated.
Recommended Citation
Forsyth, Timothy B. and Pollard, William B.
(2011)
"Alerting Students to the Dangers of Misstating Equations in the Reciprocal Method of Cost Allocation,"
Journal of Business, Industry, and Economics: Vol. 16, Article 5.
Available at:
https://roar.una.edu/jobie/vol16/iss1/5