Question: Safety First Insurance Company carries three major lines of insurance

Safety First Insurance Company carries three major lines of insurance: auto, workers’ compensation, and homeowners. The company has prepared the following report for 2015:

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 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 was retrieved from the corporate records and is shown below.

a. Complete the product profitability report through the administrative activities. Determine the income from operations as a percent of premium revenue, rounded to the nearest whole percent.
b. Interpret thereport.

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  • CreatedJune 27, 2014
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