Wells Fargo Insurance Services (WFIS) is an insurance brokerage company that clas­sified insurance products as either “easy” or “difficult.” Easy and difficult products were defined as follows: Easy: Electronic claims, few inquiries, mature product Difficult: Paper claims, complex claims to process, many inquiries, a new product with complex options The company originally allocated processing and service expenses on the basis of revenue. Under this traditional allocation approach, the product profitability report revealed the following:

WFIS decided to use activity-based costing to allocate the processing and service expenses. The following activity-based costing analysis of the same data illustrates a much different profit picture for the two types of products.

Explain why the activity-based profitability report reveals different information from the traditional sales allocationreport.

  • CreatedJune 27, 2014
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