Question

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Actuarial			Rating			Marketing			Sales
Actuarial	0	%		10	%		10	%		80	%
Rating	10	%		0	%		30.0	%		60.0	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Actuarial	$	80,000
Premium Rating	$	170,000
Marketing	$	63,000
Sales	$	64,000

The total cost accumulated in the sales department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

rev: 10_12_2018_QC_CS-143035

Multiple Choice

$166,986.

$146,917.

$250,263.

$126,737

$174,565.

Answer 1

		Service Provided
Department	Department Overhead before distribution	Actuarial	Premium Rating
Marketing	63000	10%	30%
Sales	64000	80%	60%
Actuarial	80000	-	10%
Premium Rating	170000	10%	-
		100%	100%

Actuarial = 80000+ 0.1 Premium Rating .......i)

Premium Rating = 170000+ 0.1 Actuarial .......ii)

Using ii) in i) to calculate Actuarial:

Actuarial = 80000+ 0.1(170000+0.1 Actuarial)

Actuarial = 97979.7979

Premium Rating= 170000+0.1(97979.7979)

= 179797.9797

Distribution Summary:

Particulars	Operation Department		Service Department		Total
	Marketing	Sales	Actuarial	Premium Rating
Department direct cost before allocation	63000	64000	80000	170000	377000
Allocation:
Dept Actuarial - $97979.7979 (10%,80%,10%)	9797.9797	78383.8383	(97979,7979)	9797.9797	-
Dept Premium Rating- $179797.9797 (30%,60%,10%)	53939.3939	107878.7878	17979.7979	(179797.9797)	-
Total Cost:-	126737	250263	-	-

Therefore, Total Cost accumulated in the sales department using reciprocal method = $250263