Service department cost allocations using the net services model and the MDTERM function in Excel

• Present method for finding reciprocal costs using Excel functions and Cramer's rule.
• Compare results of various formulations of reciprocal costing for service departments.
• Illustrate the net services with our solution technique.
• Trace of cost between departments, find external cost calculations and cost per unit.
• Assess the comparability of Net versus Gross services models.

A teaching note on the reformulation of service cost formulas is presented as a way to add value to the process of Reciprocal Costing by facilitating the tracing of cost between service departments, thereby increasing the accuracy of cost estimations for outsourcing decisions. Emphasis is placed on a solution method using the Excel MDETERM function and Cramer's rule that facilitates the tracing of costs between service departments.