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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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