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
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter5: Support Department And Joint Cost Allocation
Section: Chapter Questions
Problem 10E: Support department cost allocation comparison Refer to your answers to Exercises 7-9. Compare the...
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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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