Problem 7-41 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	$	635,000
Operations		1,790,000
Claims processing		290,000
Administration		644,000
Sales		650,000
Total costs	$	4,009,000

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. (Round percentage calculations to 4 decimal places (e.g., 33.3333%). Do not round your intermediate calculations. Round your final answers to nearest whole dollar amount.)