A large manufacturing company has two service departments and two production
departments. Each of the service departments renders services to each other and to the two
production departments. Which one of the following methods would most accurately
allocate the costs of the service departments to the production departments of this
company?

Answer (D) is correct.
The reciprocal method uses simultaneous equations to allocate each
service department’s costs. It allocates costs by explicitly including the
mutual services rendered among all departments. When service
departments render services to each other, the use of the direct method or
the step-down method would not be theoretically accurate. Accordingly,
in such situations, the reciprocal method would result in the most
accurate allocation.