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 percentges) to the other departments is
To
From Actuarial Premium Rating Advertising Sales
Actuarial 80% 10% 10%
Premium 20% 20% 60
The direct operating costs of the departments (including both variable and fixed costs) are
Actuarial $80,000
Premium rating 15,000
Advertising 60,000
Sales 40,000
1. Determine the total cost allocated to the advertising and sales departments using the direct method.
2. Determine the total cost allocated to advertising and sales using the step method
3. Determine the total cost allocated to advertising and sales using the reciprocal method.