Reference no: EM132999293

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:

                        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:

Problem 1. Determine the total costs of the advertising and sales departments after using the direct method of allocation.

Problem 2. Determine the total costs of the advertising and sales departments after using the step method of allocation.

Problem 3. Determine the total costs of the advertising and sales departments after using the reciprocal method of allocation.