On reciprocal considerations in variable costs

Existing cost accounting practices recognise reciprocal servicing as a problem that concerns only service centres and not much attention has been paid while allocating the expenses of service centres to cost centres. However, the problem of reciprocal servicing can exist even for costs which are strictly variable and unless the relevant logic of implications of reciprocal servicing is considered there is every possibility of obtaining wrong costs of various entities. This may lead to taking decisions that can prove detrimental to a firm by way of increased costs of input materials. This paper illustrates the adverted point by considering a numerical example. In the process the paper shows the use of matrix algebra as inevitable for cost accounting purposes.