Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 35

Departmental Cost Allocation; Insurance Company 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.

The total costs incurred in the five departments are:

Required Use 4 or more decimal places (e.g., 33.3333%) in your calculations. Allocate the $4,350,000 total departmental costs to the three operating departments using (a) the direct method, (b) the step method (once for information technology and once for operations going first in the allocation), and (c) the reciprocal method.