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%           40%        20%              40%

Rating            25%            0%        45%            35%

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

Actuarial $60,000

Premium Rating $40,000

Marketing $60,000

Sales   $70,000

Determine the total cost accumulated in the marketing department using the step 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; assume the actuarial department goes first):

Answer 1

Allocation

	Acturaial	Rating	Marketing	Sales
Direct operating cost	60000	40000	60000	70000
Allocation of actuarial	-60000	24000	12000	24000
Allocation of premium rating	0	-64000	36000	28000
Total Allocation	0	0	108000	122000

So answer is $108000