In: Accounting
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
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 | $ - | $ - |
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