HomeLife Life Insurance Company has two service departments (actuarial and premi

Question

HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales) The distribution of each service department's efforts (in percentages) to the other departments is shown in the following table To Premium From Actuarial Rating Advertising Sales 75% Actuarial Premium 20% 10% 15% 20 60 The direct operating costs of the departments (including both variable and fixed costs) are $88,000 Actuarial Premium rating 23,000 Advertising Sales 68,000 48,000 Required 1. Determine the total cost allocated to the advertising and sales departments using the direct method Total Cost Allocated Advertising department Sales department 2. Determine the total cost allocated to advertising and sales using the step method Total Cost Allocated Advertising department Sales department 3. Determine the total cost allocated to advertising and sales using the reciprocal method. (Round your intermediate calculations to the nearest whole dollar and final answers to 2 decimal places.) Total Cost Allocated Advertising department Sales department

Explanation / Answer

1

2

3

Advertising Department sales department Acturial Premium Rating 35200 52800 Rating 5750 17250 Direct Cost 68000 48000 Total Cost Allocated 108950 118050

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