Problem 7-41 (Algo) 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. Operating Departments Information technology Operations Claims processing Administration Sales Support Departments Information technology Operations 10% The total costs incurred in the five departments are: Total costs Information Technology Operations 20% $ 558,000 1,730,000 250,000 599,000 650,000 $ 3,787,000 Claims Processing Administration 20% 40% 10 50 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 20% 30 Sales Total
Problem 7-41 (Algo) 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. Operating Departments Information technology Operations Claims processing Administration Sales Support Departments Information technology Operations 10% The total costs incurred in the five departments are: Total costs Information Technology Operations 20% $ 558,000 1,730,000 250,000 599,000 650,000 $ 3,787,000 Claims Processing Administration 20% 40% 10 50 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 20% 30 Sales Total
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Problem 7-41 (Algo) 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.
Operating Departments
Information technology
Operations
The total costs incurred in the five departments are:
Information technology
$ 558,000
Operations
1,730,000
Claims processing
Administration
Sales
Support Departments
Information
Technology Operations
20%
Total costs
10%
250,000
599,000
650,000
$ 3,787,000
Claims
Processing Administration
20%
40%
10
50
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
20%
30
Sales
Total](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6e0fefd6-f6db-496c-9a39-e894d1c47056%2F2a68f696-e891-4dd4-b990-1919f4965957%2Fx75b2ua_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 7-41 (Algo) 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.
Operating Departments
Information technology
Operations
The total costs incurred in the five departments are:
Information technology
$ 558,000
Operations
1,730,000
Claims processing
Administration
Sales
Support Departments
Information
Technology Operations
20%
Total costs
10%
250,000
599,000
650,000
$ 3,787,000
Claims
Processing Administration
20%
40%
10
50
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
20%
30
Sales
Total
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Step 1: Define direct cost and indirect cost :
VIEWStep 2: a. Determining the cost using direct method
VIEWStep 3: b. 1 Determining the cost using step method for IT
VIEWStep 4: b.2 Determining the cost using step method for operations
VIEWStep 5: c. Determining the cost using reciprocal method
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