In: Accounting
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.
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 |