Shield Insurance Company carries three major lines of insurance:

Shield Insurance Company carries three major lines of insurance: auto, workers€™ compensation, and homeowners. The company has prepared the following report for 2011:

Shield Insurance Company Product Profitability Report For the Year Ended December 31, 2011 Workers' Homeowners Auto S5,6

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....... $160 per new policy
Cancellation processing...... $240 per cancellation
Claim audits............ $500 per claim audit
Claim disbursements processing.... $120 per disbursement
Premium collection processing... $ 25 per premium collected
Activity-base usage data for each line of insurance were retrieved from the corporate records and are shown below.

Shield Insurance Company carries three major lines of insurance:

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

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