The Wholehouse Life Insurance Company has two service departments - actuarial and premium rating, and two production departments - marketing and sales. The distribution of each service department's efforts to the other departments is shown below:

Providers:	User Departments
Actuarial	Premium	Marketing	Sales
S1 (Actuarial)	0%	70%	15%	15%
S2 (Premium)	25%	0%	25%	50%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Actuarial $96,000

Premium Rating 18,000

Marketing 72,000

Sales 48,000

8. The total service departments (Actuarial & Premium) cost allocated to the marketing department using the direct method is calculated to be:

A.$ 48,000 B.$ 54,000 C.$120,000 D.$114,000

9. The total cost accumulated in the Marketing department using the step-down method is calculated to be

1. $114,800
2. $119,200
3. $117,000
4. $126,000

10. Using the reciprocal method, the equations required to calculate the costs of the support departments are: (where A = the cost of Actuarial department and P the cost of Premium Rating department.

A.A = $96,000 + 0.25P; P=$18,000 + 0.25A B.A= $96,000 + 0.7P; P = $18,000 + 0.7A C.A = $96,000 + 0.25P; P=$18,000 + 0.7A D.A = $96,000 + 0.7P; P=$18,000 + 0.25A