Using Excel's Solver Function To Facilitate Reciprocal Service Department 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 and theoretically incorrect direct or step-down methods.  This article illustrates how Excel's Solver Function can be used to greatly simplify the reciprocal cost allocation method.  Solver Function users will be pleased to see how easy it is to let Excel do the mathematics once the linear equations are formulated.