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. Information technology Operations Support Departments Operating Departments Information Technology Clains Operations 20% Processing 20% Administration 40% Sales 20% 10% 10 50 30 The total costs incurred in the five departments are: Information technology Operations claims processing Administration Sales Total costs $ 578,000 1,780,000 290,000 630,000 650,000 $ 3,928,000 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.) a. Direct Method b. Step Method (Info Tech First) Step Method (Operations First) c. Reciprocal Method Operating Departments Claims Processing Administration Sales Total 0 $ 0 $ 0 0
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. Information technology Operations Support Departments Operating Departments Information Technology Clains Operations 20% Processing 20% Administration 40% Sales 20% 10% 10 50 30 The total costs incurred in the five departments are: Information technology Operations claims processing Administration Sales Total costs $ 578,000 1,780,000 290,000 630,000 650,000 $ 3,928,000 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.) a. Direct Method b. Step Method (Info Tech First) Step Method (Operations First) c. Reciprocal Method Operating Departments Claims Processing Administration Sales Total 0 $ 0 $ 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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.
Information technology
Operations
Support Departments
Operating Departments
Information
Technology
100%
Operations
20%
Clains
Processing
20%
Administration
40%
Sales
20%
10
50
30
The total costs incurred in the five departments are:
Information technology
Operations
claims processing
Administration
Sales
Total costs
$ 578,000
1,780,000
290,000
630,000
650,000
$ 3,928,000
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.)
Operating Departments
Claims Processing
Administration
Sales
Total
a. Direct Method
$
0
b. Step Method (Info Tech First)
$
0
Step Method (Operations First)
c. Reciprocal Method
$
0
$
0
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Step 1: Define allocations of cost to support department
VIEWStep 2: a. Determine the cost allocated using direct method.
VIEWStep 3: b. 1 Determine the cost allocated using step method for IT
VIEWStep 4: b.2 Determine the costs allocated using step method for operations
VIEWStep 5: c. Estimate the cost using reciprocal method
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