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 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 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