Problem

Departmental Cost Allocation; Insurance Company CareMark Insurance Company has two service...

Departmental Cost Allocation; Insurance Company CareMark Insurance Company has two service lines, health insurance and auto insurance. The two product lines are served by three operating departments which are necessary for providing the two types of services: claims processing, administration, and sales. These three operating departments are supported by two departments: information technology and facilities. The support provided by information technology and facilities to the other departments is shown below.

 

Support Departments

Operating Departments

 

Information Technology

Facilities

Claims Processing

Administration

Sales

Information technology

30%

30%

20%

20%

Facilities

10%

20

40

30

The total costs incurred in the five departments are:

Information technology

$600,000

Facilities

1,800,000

Claims processing

345,000

Administration

875,000

Sales

555,000

   Total costs

$4,175,000

Required Allocate the $4,175,000 total departmental costs to the three operating departments using (a) the direct method, (b) the step method (for both information technology and facilities going first in the allocation), and (c) the reciprocal method.

Step-by-Step Solution

Request Professional Solution

Request Solution!

We need at least 10 more requests to produce the solution.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the solution will be notified once they are available.
Add your Solution
Textbook Solutions and Answers Search
Solutions For Problems in Chapter 7