HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service department’s 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 25% — 15 60
HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service department’s 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 25% — 15 60
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service department’s 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 | 25% | — | 15 | 60 |
The direct operating costs of the departments (including both variable and fixed costs) are:
| Actuarial | $ 99,000 |
|---|---|
| Premium rating | 34,000 |
| Advertising | 79,000 |
| Sales | 59,000 |
1. Determine the total costs of the advertising and sales departments after using the reciprocal method of allocation.
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