Exercise 7-28 (Algo) Departmental Cost Allocation

HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service departments efforts (in percentages) to the other departments is shown in the following table:

	To
From	Actuarial	Premium Rating	Advertising	Sales
Actuarial		80%	10%	10%
Premium	25%		15	60

The direct operating costs of the departments (including both variable and fixed costs) are:

Actuarial	$ 94,000
Premium rating	29,000
Advertising	74,000
Sales	54,000

Required:

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

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

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

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

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

	Total Cost Allocated
Advertising department	$
Sales department	$

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

	Total Cost Allocated
Advertising department	$
Sales department	$

Determine the total costs of the advertising and sales departments after using the reciprocal method of allocation. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

	Total Cost Allocated
Advertising department
Sales department