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This paper presents an approach to the wordlength allocation and optimization problem for linear digital signal processing systems implemented as custom parallel processing units. Two techniques are proposed, one which guarantees an optimum set of wordlengths for each internal variable, and one which is a heuristic approach. Both techniques allow the user to tradeoff implementation area for arithmetic error at system outputs. Optimality (with respect to the area and error estimates) is guaranteed through modeling as a mixed integer linear program. It is demonstrated that the proposed heuristic leads to area improvements of 6% to 45% combined with speed increases compared to the optimum uniform wordlength design. In addition, the heuristic reaches within 0.7% of the optimum multiple wordlength area over a range of benchmark problems.