Question

In: Accounting

7-41: Departmental cost allocation insurance company: Comprehensive insurance company has two product lines ; health insurance...

7-41: 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 which are necessary for providing the two types of products:claims processing, administration, and sales. These three operating departments are supported by two departments: infromation technology and operations. The support provided by information technology and operations to the other departments is shown below.

Support departments

Information technology operations

information --- 20%

Operations 10% ___

Operating Department

Claims processing Administration sales

Infromation 20% 40% 20%

operations 10 50 30

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.) direct method only.

Solutions

Expert Solution

Solution:

It is assumed that Information technology and operations both have departmental cost of $4,350,000.

From Service Department Cost Allocation - Direct Method
Service Department Operating Department
Information Technology Operations Claim Procesing Administration Sales
Direct charges of department $4,350,000.00 $4,350,000.00
Information Technology (2:4:2) -$4,350,000.00 $1,087,500.00 $2,175,000.00 $1,087,500.00
Operations (1:5:3) -$4,350,000.00 $483,333.33 $2,416,666.67 $1,450,000.00
Total $0.00 $0.00 $1,570,833.33 $4,591,666.67 $2,537,500.00

Related Solutions

Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines...
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. Support Departments Operating Departments Information Technology Operations Claims Processing Administration Sales Information technology — 20...
Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines...
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. Support Departments Operating Departments Information Technology Operations Claims Processing Administration Sales Information technology — 20...
Comprehensive Insurance Company has two products lines: health insurance and auto insurance. The two products lines...
Comprehensive Insurance Company has two products lines: health insurance and auto insurance. The two products 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 department is shown below. Support Departments Operating Departments IT Operations Claims Processing Administration Sales IT 20% 20% 40% 20%...
Exercise 7-28 Departmental Cost Allocation [LO 7-3, 7-5] HomeLife Life Insurance Company has two service departments...
Exercise 7-28 Departmental Cost Allocation [LO 7-3, 7-5] HomeLife Life Insurance Company has two service departments (actuarial and premium rating) and two production departments (advertising and sales). The distribution of each service department’s efforts (in percentages) to the other departments is shown in the following table: To From Actuarial Premium Rating Advertising Sales Actuarial — 80 % 10 % 10 % Premium 20 % — 20 60 The direct operating costs of the departments (including both variable and fixed costs)...
Exercise 7-29 Departmental Cost Allocation [LO 7-3] Robinson Products Company has two service departments (S1 and...
Exercise 7-29 Departmental Cost Allocation [LO 7-3] Robinson Products Company has two service departments (S1 and S2) and two production departments (P1 and P2). The distribution of each service department’s efforts (in percentages) to the other departments is: From To S1 S2 P1 P2 S1 — 20 % 30 % ? % S2 20 % — ? 40 The direct operating costs of the departments (including both variable and fixed costs) are: S1 $ 170,000 S2 64,000 P1 51,000 P2...
X Company is considering switching to a departmental allocation system. It has two departments, and would...
X Company is considering switching to a departmental allocation system. It has two departments, and would use direct labor hours as the cost driver in Department 1 and machine hours as the cost driver in Department 2. The following are budgeted costs and driver amounts for these two departments in 2017: Department 1 Department 2 Direct materials $16,700 $47,200 Direct labor $640,000 $640,000 Overhead $110,000 $88,000 Direct labor hours 40,000 40,000 Machine hours 100,000 130,000 Assume the following information for...
The following information is departmental cost allocation with two service departments and two production departments. Percentage...
The following information is departmental cost allocation with two service departments and two production departments. Percentage Service Provided to Department Cost S1 S2 P1 P2 Service 1 (S1) $ 30,000 0 % 30 % 35 % 35 % Service 2 (S2) 20,000 20 0 20 60 Production 1 (P1) 100,000 Production 2 (P2) 150,000 REQ1. What is the amount of service department cost allocated to P1 and P2 using the direct method? REQ2. What is the total cost in P1...
The following information is departmental cost allocation with two service departments and two production departments. Percentage...
The following information is departmental cost allocation with two service departments and two production departments. Percentage Service Provided to Department Cost S1 S2 P1 P2 Service 1 (S1) $ 42,000 0 % 25 % 45 % 30 % Service 2 (S2) 32,000 20 0 20 60 Production 1 (P1) 220,000 Production 2 (P2) 270,000 What is the amount of service department cost allocated to P1 and P2 using the direct method?
Product Profitability Porter Insurance Company has three lines of insurance: automobile, property, and life. The life...
Product Profitability Porter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porter’s controller, has done an analysis of that segment. She has discovered that the commission paid to the agent for the first year the policy is in place is 55 percent of the first-year premium. The second-year commission is 20 percent, and all succeeding years a commission equal to 5...
7) Cesar Company has three product lines: A, B and C. The following annual information is...
7) Cesar Company has three product lines: A, B and C. The following annual information is available:                                                          Product A               Product B               Product C Sales                                                    $100,000                   $90,000                   $44,000 Variable costs                                           76,000                     48,000                     35,000 Contribution margin                                24,000                     42,000                      9,000 Avoidable fixed costs                                 9,000                     18,000                      3,000 Unavoidable fixed costs                             6,000                       9,000                      7,700 Operating income(loss)                             $9,000                   $15,000                  $(1,700) Assume Cesar Company drops Product C. Cesar Company then doubles the production and sales of Product B without increasing fixed costs. What will happen to operating income? A) increase by $15,000 B) increase by $24,000 C) increase by $36,000 please explain why this is the correct...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT