Home Life Insurance Company Has Two Service Departments (Actuarial and Premium

question 64

Essay

Home 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 as follows:
$\begin{array}{lllll} & \underline{\text { Actuarial }} & \text { Premium } & \text { Advertising } &\underline{ \text { Sales }} \\&&\text { Rating } \\\text { Actuarial } & - & 80\%& 10 \% & 10 \% \\\text { Premium } & 20 \% & - & 20 \% & 60 \%\end{array}$ The direct operating costs of the departments are: $\begin{array} { l l } \text { Actuarial } & \$ 80,000 \\\text { Premium Rating } & 15,000 \\\text { Advertising } & 60,000 \\\text { Sales } & 40,000\end{array}$ Required:
A. Use the reciprocal services method to formulate the equations to be used for allocating the total cost to advertising and sales and calculate the reciprocated cost of each service department.
B. Use the reciprocal cost method and calculate the total cost allocated to each operating department.

Interpret the information provided by a CVP income statement.

Define the activity level and its representations.

Differentiate between variable, fixed, and mixed costs, and how they behave with changes in activity level.

Identify cost behavior and how costs respond to changes in business activity.

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Definitions:

Demonstrated Nature

Observable behaviors or characteristics that provide evidence of an individual's inherent qualities or tendencies.

Emerging Adulthood

A phase of life between adolescence and full-fledged adulthood, characterized by exploration and instability in work, relationships, and identity.

Late Adolescence

The final phase of adolescence, typically ranging from ages 17 to 19, characterized by significant physical, emotional, and cognitive developments.

Protracted Immaturity

A prolongation of the development phase, where individuals delay adopting the roles or responsibilities typically associated with adulthood.