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

 

From:						To:
		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.