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:

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

Required:

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

Actuarial From Actuarial Premium To Premium Rating 80 % Advertising 10% 15 Sales 10% 60 25 % Actuarial Premium rating Advertising Sales $96,000 31,000 76,000 56,000