Question

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Actuarial			Rating			Marketing			Sales
Actuarial	0	%		40	%		20	%		40	%
Rating	25	%		0	%		37.5	%		37.5	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Actuarial	$	65,000
Premium Rating	$	45,000
Marketing	$	65,000
Sales	$	75,000

The total cost accumulated in the sales department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume that the actuarial department goes first):

Multiple Choice

• $109,500.

• $113,500.

• $136,500.

• $140,500.

• $145,500.

Answer 1

Allocation

	Acturial	Premium rating	Marketing	Sales	Total
Cost	65000	45000	65000	75000	250000
Allocation of acturial	-65000	26000	13000	26000
Allocation of premium rating		-71000	35500	35500
Total			113500	136500

So answer is c) $136500