Posted: February 1st, 2021

Homelife life insurance company has two service departments

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 percentges) to the other departments is

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                                                                To

From                     Actuarial              Premium Rating                                Advertising                         Sales

Actuarial                                              80%                                        10%                                        10%

Premium             20%                                                                        20%                                        60

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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

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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