HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production...
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Accounting
HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service departments efforts (in percentages) to the other departments is shown in the following table:
To
From
Actuarial
Premium Rating
Advertising
Sales
Actuarial
80%
10%
10%
Premium
25%
15
60
The direct operating costs of the departments (including both variable and fixed costs) are:
Actuarial
$ 82,000
Premium rating
17,000
Advertising
62,000
Sales
42,000
Required:
1. Determine the total costs of the advertising and sales departments after using the direct method of allocation.
2. Determine the total costs of the advertising and sales departments after using the step method of allocation.
3. Determine the total costs of the advertising and sales departments after using the reciprocal method of allocation.
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