Question

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

The direct operating costs of the departments (including both variable and fixed costs) are:

Actuarial	$	81,000
Premium rating		16,000
Advertising		61,000
Sales		41,000

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: To From Actuarial Premium Rating Advertising Sales Actuarial — 70 % 15 % 15 % Premium 20 % — 20 60 The direct operating costs of the departments (including both variable and fixed costs) are: Actuarial $ 81,000 Premium rating 16,000 Advertising 61,000 Sales 41,000 Required: 1. Determine the total costs of the advertising and sales departments after using the direct method or 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.

Answer 1