DO NOT ANSWER IF YOU DONT KNOW The Long Term Care Plus Company has two service d
ID: 2494175 • Letter: D
Question
DO NOT ANSWER IF YOU DONT KNOW
The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two production departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:
DO NOT ANSWER IF YOU DONT KNOW
The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two production departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:
FROM TO Actuarial Rating Marketing Sales Actuarial 0.0% 40.0% 20.0% 40.0% Rating 27.0% 0.0% 41.7% 31.3% The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial $66,000 Rating $44,000 Marketing $66,000 Sales $76,000 The total cost accumulated in the marketing department using the step method is: $132,585 $113,134 $126,000 $119,415 $138,866Explanation / Answer
Step method allocates the costs of some service departments to other service departments, but once a service department’s costs have been allocated, no subsequent costs are allocated back to it.
The total cost accumulated in the Marketing department using step method is $119,415. It is calculated as per below.
Point to be remembered is that any services that a department provides to itself are ignored, so the intersection of the row and column for each service department shows zero. The rows sum to 100%, so that all services provided by each service department are charged out.
After the first service department has been allocated, in order to derive the percentages to apply to the production departments and any remaining service departments, it is necessary to “normalize” these percentages so that they sum to 100%. The normalization of percentage for rating is calculated and shown separately. The respective % of each department is divided by the sum of both the department (Marketing and Sales) to get the normal %.
Actuarial Rating Marketing Sales Cost Prior to Allocation 66,000 44,000 66,000 76,000 Allocation of Actuarial (66,000) 26,400 13,200 26,400 Allocation of Rating (70,400) 40,215 30,185 - - 119,415 132,585 Normalization of Rating % Marketing 41.7% / 73% 57.12 Sales 31.3% / 73% 42.88 Total 100.00Related Questions
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