1. **State the problem:** We need to allocate the costs of the two support departments (Information Technology and Operations) to the three operating departments (Claims Processing, Administration, Sales) using the direct method. 2. **Given data:** - Initial costs: - Information Technology (IT): 600,000 - Operations (Ops): 1,800,000 - Claims Processing (CP): 450,000 - Administration (Admin): 850,000 - Sales: 650,000 - Support percentages (direct method ignores support between support departments): - IT supports CP 20%, Admin 40%, Sales 20% - Ops supports CP 10%, Admin 50%, Sales 30% 3. **Direct method rule:** Allocate support department costs only to operating departments, ignoring support between support departments. 4. **Calculate allocations:** - IT allocation: - To CP: $600,000 \times 0.20 = 120,000$ - To Admin: $600,000 \times 0.40 = 240,000$ - To Sales: $600,000 \times 0.20 = 120,000$ - Ops allocation: - To CP: $1,800,000 \times 0.10 = 180,000$ - To Admin: $1,800,000 \times 0.50 = 900,000$ - To Sales: $1,800,000 \times 0.30 = 540,000$ 5. **Add allocations to original operating costs:** - CP total: $450,000 + 120,000 + 180,000 = 750,000$ - Admin total: $850,000 + 240,000 + 900,000 = 1,990,000$ - Sales total: $650,000 + 120,000 + 540,000 = 1,310,000$ 6. **Final answer:** - Claims Processing: 750,000 - Administration: 1,990,000 - Sales: 1,310,000 These are the total costs in each operating department after allocation using the direct method.