Lean Mfg Process Activity Analysis for a Service CompanyStatewide Insurance Company has a process for making payments on insurance claims as follows:ReceivingClaimAdjustingClaimPayingClaimAn activity analysis revealed that the cost of these activities was as follows:Receiving claim$62,500Adjusting claim137,500Paying claim50,000Total$250,000This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and isvariable to the number of claims adjusted.The process received, adjusted, and paid 5,000 claims during the period. All claims were treated identically in this process.To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not beadjusted but would be accepted upon the insured's evidence of claim. Claims above00 would be adjusted. It is estimated that 65% of the claims are under $1,000 and would thus be paid withoutadjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required.Statewide Insurance CompanyIndividual activity cost to the total processcostPercent ofActivitiesActivity CostTotal ProcessReceiving claim $%Adjusting claim%Paying claim%Total% b. Determine the average total process cost per claim payment, assuming 5,000 total claims. Round to the nearest whole dollar.$4per paid claimc. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount is zero, leave the entry box blank. Use the minus sign to indicate an additionalcost in the last column.Statewide Insurance CompanyChanges in the activity costsActivity CostAfter ImprovementActivity CostSavingActivity Cost PriorActivitiesto ImprovementReceiving claim $Adjusting claimPaying claimTotalsd. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,000 total claims. Round to the nearest cent.$4per paid claim

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Answered: Process Activity Analysis for a Service…

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter27: Lean Principles, Lean Accounting, And Activity Analysis

Section: Chapter Questions

Problem 27.22EX

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Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: An activity analysis revealed that the cost of these activities was as follows: Receiving claim $20,100 Adjusting claim 140,700 Paying claim 40,200 Total $201,000 This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted. The process received, adjusted, and paid 6,700 claims during the period. All claims were treated identically in this process. To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of claim. Claims above $1,000 would be…
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