An Easy Way to Allocate Support Department Costs using the Reciprocal Method

Abstract

Support department cost allocation is important to external and internal users of a company's financial information. It is widely recognized that the reciprocal method provides the most meaningful allocation because it fully recognizes services provided by support departments for other support departments. Despite its superiority over other methods, the reciprocal method is rarely applied in practice because of perceived complexities in its application. This article illustrates a simple method of applying the reciprocal method to allocate multiple support department costs using an Excel spreadsheet.