Departmental Cost Allocation; Insurance Company
Comprehensive Insurance Company has two product lines: health insurance and auto
insurance. The two product lines are served by three operating departments which are
necessary for providing the two type of products: claims processing, administration, and sales.
These three operating departments are supported by two departments: information
technology and operations. The support provided by information technology and operations
to the other departments is shown below.
	Support Departments			Operating Departments
	Information Technology	Operations		Claims Processing	Adminstration	Sales
Information Technology	-	20%		20%	40%	20%
Operations	10%	-		10	50	30
The total costs incurred in the five departments are:
Information technology		$600,000
Operations		1,800,000
Claims processing		450,000
Adminstration		850,000
Sales		650,000
Total costs		$4,350,000
Required: Use 4 or more decimal places (e.g., 33.3333%) in your calculations. Allocate the
$4,350,000 total departmental costs to the three operating departments using (a) the direct
method, (b) the step method (once for information technology and once for operations
going first in the allocation), and c) the reciprocal method.