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 servicedepartment’s efforts (in percentages) to the other departments isshown in the following table:
To
From Actuarial Premium Rating Advertising Sales
Actuarial — 70 % 15 % 15 %
Premium 20 % — 20 60
The direct operating costs of the departments (including bothvariable and fixed costs) are:
Actuarial $ 93,000
Premium rating 28,000
Advertising 73,000
Sales 53,000
Required:
1. Determine the total costs of the advertising and salesdepartments after using the direct method or allocation.
2. Determine the total costs of the advertising and salesdepartments after using the step method of allocation.
3. Determine the total costs of the advertising and salesdepartments after using the reciprocal method of allocation.

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Solution 1 From Service Department Cost Allocation Direct Method Service Department Production Departments Actuarial Premium rating Advertising Sales Direct charges of department 93000 28000 73000 53000 Actuarial 11 93000 46500 46500 Premium 2060 28000 7000 21000 Total 0 0 126500 120500 Solution 2 From Service Department Cost See Answer

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In: AccountingHomeLife Life Insurance Company has two service departments(actuarial and premium rating) and two production departments...HomeLife Life Insurance Company has two service departments(actuarial and premium rating) and two production departments(advertising and sales). The distribution of each servicedepartment’s efforts (in percentages) to the other departments isshown in the following table:ToFromActuarialPremium RatingAdvertisingSalesActuarial—70%15%15%Premium20%—2060The direct operating costs of the departments (including bothvariable and fixed costs) are:Actuarial$93,000Premium rating28,000Advertising73,000Sales53,000Required:1. Determine the total costs of the advertising and salesdepartments after using the direct method or allocation.2. Determine the total costs of the advertising and salesdepartments after using the step method of allocation.3. Determine the total costs of the advertising and salesdepartments after using the reciprocal method of allocation.

	To
From	Actuarial			Premium Rating			Advertising			Sales
Actuarial		—			70	%		15	%		15	%
Premium		20	%		—			20			60


Actuarial	$	93,000
Premium rating		28,000
Advertising		73,000
Sales		53,000