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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: Receiving Claim Adjusting Clalm Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $21,900 Adjusting claim 153,300 Paying claim 43,800 Total $219,000 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 7,300 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 adjusted. It is estimated that 75% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.

Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Clalm Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $21,900 Adjusting claim 153,300 Paying claim 43,800 Total $219,000 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 7,300 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 adjusted. It is estimated that 75% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.

Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter9: Operating Activities
Section: Chapter Questions
Problem 13QE
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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 Company Individual activity cost to the total process cost Percent of Activity Cost Total Process Activities Receiving claim Adjusting claim Paying claim Total b. Determine the average total process cost per claim payment, assuming 7,300 total claims. Round to the nearest whole dollar. per paid claim c. 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 additional cost in the last column. Statewide Insurance Company Changes in the activity costs Activity Cost Saving Activity Cost Prior Activity Cost After Improvement Activities to Improvement Receiving claim Adjusting claim Paying claim Totals $1 d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 7,300 total claims. Round to the nearest cent. $ per paid claim
Transcribed Image Text: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 Company Individual activity cost to the total process cost Percent of Activity Cost Total Process Activities Receiving claim Adjusting claim Paying claim Total b. Determine the average total process cost per claim payment, assuming 7,300 total claims. Round to the nearest whole dollar. per paid claim c. 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 additional cost in the last column. Statewide Insurance Company Changes in the activity costs Activity Cost Saving Activity Cost Prior Activity Cost After Improvement Activities to Improvement Receiving claim Adjusting claim Paying claim Totals $1 d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 7,300 total claims. Round to the nearest cent. $ per paid claim
Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Clalm Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $21,900 Adjusting claim 153,300 Paying claim 43,800 Total $219,000 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 7,300 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 adjusted. It is estimated that 75% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.
Transcribed Image Text:Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Clalm Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $21,900 Adjusting claim 153,300 Paying claim 43,800 Total $219,000 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 7,300 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 adjusted. It is estimated that 75% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.
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