Using Excel's Matrix Operations to Facilitate Reciprocal Cost Allocations

Abstract

The reciprocal method of service department cost allocation requires linear equations to be solved simultaneously. These computations are often so complex as to cause the abandonment of the reciprocal method in favor of the less sophisticated direct or step-down methods. Here is a short example demonstrating how Excel's sometimes unknown matrix operations can be used to greatly simplify the reciprocal allocation method. Students do not need to possess a strong background in matrix algebra to use this approach.