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Question - 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:
From
To
Actuarial
Premium Rating
Advertising
Sales
-
80%
10%
Premium
25%
15
60
The direct operating costs of the departments (including both variable and fixed costs) are:
$96.000
Premium rating
31,000
76,000
56,000
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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