Question

In: Accounting

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and...

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: FROMTO Actuarial Rating Marketing SalesActuarial0% 10% 10% 80%Rating20% 0% 30.0% 50.0% The direct operating costs of the departments (including both variable and fixed costs) were as follows: Actuarial$10,000Premium Rating$200,000Marketing$62,000Sales$67,000

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):

$128,633 $148,813. $210,367. $168,882. $176,461

Solutions

Expert Solution

Answer

$ 210,367

Explanation:

Let the total cost of Actuarial be x.
Let the total cost of Premium rating be y.

Now,

So, x = 10000 + 0.2y ---------Equation 1
y = 200000 + 0.1x ---------Equation 2

So,

Solving Equation 1 and 2:
Substitute value of 'y' from equation 2 in Equation 1-
So, x = 10000 + 0.2 (200000 + 0.1x)
So, x = $ 51020.41
The total cost of Actuarial is $ 51020.41

Also,

Putting the value of x in equation 2-
So, y = 200000 + 0.1 * 51020.41
So, y = $ 205102.041
The total cost of Premium rating is $ 205102.041

Finally,

Marketing Sales Actuarial Premium rating
Total cost $    62,000.00 $    67,000.00 $   10,000.00 $    200,000.00
Actuarial $      5,102.04 $    40,816.33 $ (51,020.41) $         5,102.04
Total cost $    67,102.04 $ 107,816.33 $ (41,020.41) $    205,102.04
Premium rating $    61,530.61 $ 102,551.02 $   41,020.41 $   (205,102.04)
Total cost $ 128,632.65 $ 210,367.35 $                 -   $                     -  

In case of any doubt or clarification, you're welcome to come back via comments.


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