Shadyside Insurance Company manages a medical insurance program for its clients. Employees of client firms submit claims for reimbursement of medical expenses. Shadyside processes these claims, checks them to ensure that they are covered by the claimant’s policy, notes whether the claimant has reached any limit on coverage, computes any deductible, and issues a check for the claimant’s refund. Three types of clerks work in the claims processing department: supervisors, senior clerks, and junior clerks. The supervisors are paid $42,000 per year, the senior clerks are paid $37,000 per year, and the junior clerks are paid $32,000 per year. For every 150,000 claims processed per year, Shadyside plans to use one supervisor, six junior clerks, and two senior clerks. Last year, the company processed 2 million medical claims and employed 14 supervisors, 30 senior clerks, and 83 junior clerks.

Required

(a) Compute the excess costs or cost savings relating to the claims processing staff.

(b) How would you interpret these results? What additional information would you ask for if you were making a determination of the clerical group’s processing efficiencies?