Departmental Cost Allocation 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
| To | |||
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 | $80,000 |
Premium rating | 15,000 |
Advertising | 60,000 |
Sales | 40,000 |
Required
1. Determine the total cost allocated to the advertising and sales departments using the direct method.
2. Determine the total cost allocated to advertising and sales using the step method.
3. Determine the total cost allocated to advertising and sales using the reciprocal method.
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