Reference no: EM132680432

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:

 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$89,000

Premium rating 24,000

Advertising 69,000

Sales 49,000

Required:

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

Problem 2. Determine the total costs of the advertising and sales departments after using the step method of allocation.

Problem 3. Determine the total costs of the advertising and sales departments after using the reciprocal method of allocation.