Question

Which of the following is an illustration of reciprocal service costs?

• A. The maintenance cost center uses 10% of the power generating cost center costs and the power generating cost center uses 15% of the maintenance cost center.
• B. Maintenance costs are charged to the power generating cost center which are then charged to the production cost center using power.
• C. Service cost center costs are caused because of the requirements of production cost centers.
• D. The use of a service results in reciprocal action by the service cost center whereby it charges the user cost center.

Answer 1

Answer: (D)

The use of a service results in reciprocal action by the service cost center whereby it charges the user cost center.

Reciprocal service cost is defined as the situation where the manufacturing and service department provides the services to each other. For example factory maintenance department provides the services to factory administrative department and factory administrative department provides the services to factory maintenance department.