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	$	78,000
Premium Rating	$	50,000
Marketing	$	78,000
Sales	$	88,000

The total cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Multiple Choice

• $129,000.

• $133,000.

• $161,000.

• $165,000.

• $116,000.

Answer 1

Answer

• Correct Answer = Option #1: $ 129,000

	Marketing Department
Direct operating cost	$78,000
Acturial Cost allocated [$ 78000 x 20%/(20%+40%)]	$26,000
Premium Ratings allocated cost [$ 50000 x 37.5%/(37.5%+37.5%)]	$25,000
Total cost accumulated	$129,000