Safety First Insurance Company Product Profitability Report For the Year Ended December 31 Workers" Auto Homeowners Compensation Premium revenue $5,750,000 $6,240,000 $8,160,000 Estimated claims 4,312,500 4,680,000 6,120,000 Underwriting income $1,437,500 $1,560,000 $2,040,000 Underwriting income as a percent of 25% 25% 25% premium revenue Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity Activity Rates New policy processing $120 per new policy Cancellation processing $175 per cancellation Claim audits $320 per claim audit Claim disbursements processing $104 per disbursement Premium collection processing $24 per premium collected Activity-base usage data for each line of insurance wereof insurance were retrieved from the corporate records as follows: retrieved from the corporate records as follows: Workers' Auto Homeowners Compensation Number of new policies 1,320 1,500 4,080 Number of canceled policies 480 240 2,160 Number of audited claims 385 120 960 Number of claim disbursements 480 216 840 Number of premiums collected 8,400 1,800 15,000
Safety First Insurance Company Product Profitability Report For the Year Ended December 31 Workers" Auto Homeowners Compensation Premium revenue $5,750,000 $6,240,000 $8,160,000 Estimated claims 4,312,500 4,680,000 6,120,000 Underwriting income $1,437,500 $1,560,000 $2,040,000 Underwriting income as a percent of 25% 25% 25% premium revenue Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity Activity Rates New policy processing $120 per new policy Cancellation processing $175 per cancellation Claim audits $320 per claim audit Claim disbursements processing $104 per disbursement Premium collection processing $24 per premium collected Activity-base usage data for each line of insurance wereof insurance were retrieved from the corporate records as follows: retrieved from the corporate records as follows: Workers' Auto Homeowners Compensation Number of new policies 1,320 1,500 4,080 Number of canceled policies 480 240 2,160 Number of audited claims 385 120 960 Number of claim disbursements 480 216 840 Number of premiums collected 8,400 1,800 15,000
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter4: Accounting For Retail Operations
Section: Chapter Questions
Problem 4.2MBA: Sales transactions Using transactions listed in P4-2, indicate the effects of each transaction on...
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Activity-Based Costing for a Service Company
Safety First Insurance Company carries three major lines of insurance: auto, workers' compensation, and homeowners. The company has prepared the following report:
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