Problem 7-41 (Algo) Departmental Cost Allocation; Service Company [LO 7-3, 7-5]

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 types 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	Administration	Sales
Information technology		20%	20%	40%	20%
Operations	10%		10	50	30

The total costs incurred in the five departments are:

Information technology	$ 558,000
Operations	1,710,000
Claims processing	270,000
Administration	588,000
Sales	600,000
Total costs	$ 3,726,000

Required:

Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b) the step method (first for information technology going first in the allocation and then for operations going first), and (c) the reciprocal method. (Do not round intermediate calculations. Round final answers to the nearest dollar.)

		claims processing	administration	sales	total
a.	direct method
b.	Step Method (Info Tech First)
	Step Method (Operations First)
c.	Reciprocal Method