esComprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served bythree operating departments, which are necessary for providing the two types of products: claims processing, administration, andsales. These three operating departments are supported by two departments: information technology and operations. The supportprovided by information technology and operations to the other departments is shown below.Operating DepartmentsInformation technologyOperationsThe total costs incurred in the five departments are:Information technologyOperationsClaims processingAdministrationSalesC.Total costsa. Direct Methodb.Support DepartmentsInformationTechnology Operations20%Step Method (Info Tech First)Step Method (Operations First)Reciprocal Method10%$ 577,0001,530,000350,000627,000550,000$ 3,634,000Required: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 reciprocalmethod. (Do not round intermediate calculations. Round final answers to the nearest dollar.)$Claims ProcessingOperating DepartmentsClaimsProcessing20%10666,878Administration$Administration40%501,764,449 $Sales1,202,673$$$$Sales20%30LATotal0003,634,000

Overhead are the indirect costs involved in producing goods and services. Overheads include indirect…

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 $ 666,878 $ 1,764,449 $ Sales $ $ $ 1,202,673 $ Total 0 0 0 3,634,000

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 $ 666,878 $ 1,764,449 $ Sales $ $ $ 1,202,673 $ Total 0 0 0 3,634,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which of the following is TRUE regarding the total service department cost allocated by the three recognized allocation method? O The reciprocal method results in the highest amount of total cost being allocated to operating departments as it recognizes all possible interactions among the support departments prior to allocation. O The answer will depend on how many service departments are involved in supporting operating departments. O The step method results in more total cost being allocated to operating departments than the direct method as it recognizes at least some portion of interactions among the support departments. O There is no difference among the three methods in terms of total cost being allocated to operating departments. blout
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Part 1: Allocate the costs of the 3 service departments using the direct method. Part 2: Allocate the costs of the 3 service departments using the step method, with the order determined by the greater percentage usage. Part 3: Allocate the costs of the 3 service departments using the reciprical method. Part 4:What is one strength and one drawback of each of the methods?
Woodstock Binding has two service departments, IT (Information Technology) and HR (Human Resources), and two operating departments, Publishing and Binding. Management has decided to allocate IT costs on the basis of IT Tickets (issued with each IT request) in each department and HR costs on the basis of employees in each department. The following data appear in the company records for the current period: IT tickets Esployees Department direct costs a. The order of allocation starts with IT. b. The order of allocation starts with HR. Show Transcribed Text IT From: Service department costs IT 0 HR Total costs 16 $ 156,000 Required: Use the step method to allocate the service costs, using the following: $ HR 1,700 0 $ 266,200 Complete this question by entering your answers in the tabs below. Publishing 1,700 24 Required A Required B Use the step method to allocate the service costs, using the following: The order of allocation starts with IT. Note: Amounts to be deducted should be…