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: ToFromActuarialPremium RatingAdvertisingSalesActuarial — 80% 10% 10%Premium 20% — 20 60 The direct operating costs of the departments (including both variable and fixed costs) are: Actuarial$95,000Premium rating 30,000Advertising 75,000Sales 55,000 Required:1. Determine the total costs of the advertising and sales departments after using the direct method or 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.

The direct method of allocation:-This method of cost is used to directly allocated the cost of the…

Answered: HomeLife Life Insurance Company has two…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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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
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	$	95,000
Premium rating		30,000
Advertising		75,000
Sales		55,000

Required:

1. Determine the total costs of the advertising and sales departments after using the direct method or 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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