Problem 7-41 (Algo) Departmental Cost Allocation; Service Company [LO 7-3, 7-5] Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by three operating departments, which are necessary for providing the two types of products: claims processing, administration, and sales. These three operating departments are supported by two departments: information technology and operations. The support provided by information technology and operations to the other departments is shown below. Operating Departments Information technology Operations Claims processing Administration Information technology Operations The total costs incurred in the five departments are: $ 589,000 1,660,000 Sales Total costs Support Departments a. Direct Method b. Step Method (Info Tech First) Step Method (Operations First) Information Technology C. Reciprocal Method Operations 20% 10% 310,000 625,000 630,000 $ 3,814,000 Required: Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b) the step method (first for information technology going first in the allocation and then for operations going first), and (c) the reciprocal method. (Do not round intermediate calculations. Round final answers to the nearest dollar.) Claims Processing Administration 20% 40% 10 50 Operating Departments Administration Claims Processing Sales Sales 20% 30 $ $ $ $ Total 0 0 0 0
Problem 7-41 (Algo) Departmental Cost Allocation; Service Company [LO 7-3, 7-5] Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by three operating departments, which are necessary for providing the two types of products: claims processing, administration, and sales. These three operating departments are supported by two departments: information technology and operations. The support provided by information technology and operations to the other departments is shown below. Operating Departments Information technology Operations Claims processing Administration Information technology Operations The total costs incurred in the five departments are: $ 589,000 1,660,000 Sales Total costs Support Departments a. Direct Method b. Step Method (Info Tech First) Step Method (Operations First) Information Technology C. Reciprocal Method Operations 20% 10% 310,000 625,000 630,000 $ 3,814,000 Required: Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b) the step method (first for information technology going first in the allocation and then for operations going first), and (c) the reciprocal method. (Do not round intermediate calculations. Round final answers to the nearest dollar.) Claims Processing Administration 20% 40% 10 50 Operating Departments Administration Claims Processing Sales Sales 20% 30 $ $ $ $ Total 0 0 0 0
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter5: Support Department And Joint Cost Allocation
Section: Chapter Questions
Problem 10E: Support department cost allocation comparison Refer to your answers to Exercises 7-9. Compare the...
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![Problem 7-41 (Algo) Departmental Cost Allocation; Service Company [LO 7-3, 7-5]
Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Operating Departments
Information technology
Operations
The total costs incurred in the five departments are:
Information technology
Operations
Claims processing
Administration
Sales
Total costs
Support Departments
Information
Technology Operations
20%
10%
a.
Direct Method
b. Step Method (Info Tech First)
Step Method (Operations First)
c. Reciprocal Method
$ 589,000
1,660,000
310,000
625,000
630,000
$ 3,814,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b)
the step method (first for information technology going first in the allocation and then for operations going first), and (c) the reciprocal
method. (Do not round intermediate calculations. Round final answers to the nearest dollar.)
Claims
Processing Administration Sales
20%
40%
20%
10
50
30
Operating Departments
Administration
Claims Processing
Sales
$
$
$
$
Total
0
0
0
0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2d94324f-fd01-4ed3-adb9-2e2b7fd53af6%2Faf8202b1-e733-429e-84bb-8bdcdfba097e%2Fgatwjqe_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 7-41 (Algo) Departmental Cost Allocation; Service Company [LO 7-3, 7-5]
Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Operating Departments
Information technology
Operations
The total costs incurred in the five departments are:
Information technology
Operations
Claims processing
Administration
Sales
Total costs
Support Departments
Information
Technology Operations
20%
10%
a.
Direct Method
b. Step Method (Info Tech First)
Step Method (Operations First)
c. Reciprocal Method
$ 589,000
1,660,000
310,000
625,000
630,000
$ 3,814,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b)
the step method (first for information technology going first in the allocation and then for operations going first), and (c) the reciprocal
method. (Do not round intermediate calculations. Round final answers to the nearest dollar.)
Claims
Processing Administration Sales
20%
40%
20%
10
50
30
Operating Departments
Administration
Claims Processing
Sales
$
$
$
$
Total
0
0
0
0
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Step 1: Define direct cost and indirect cost :
VIEWStep 2: a. Determining the cost using direct method
VIEWStep 3: b. 1 Determining the cost using step method for IT
VIEWStep 4: b.2 Determining the cost using step method for operations
VIEWStep 5: c. Determining the cost using reciprocal method
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