Shield Insurance Company carries three major lines of insurance: auto, workers?? compensation, and homeowners. The company has

Question:

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

image

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 RatesNew policy processing....... $160 per new policyCancellation processing...... $240 per cancellationClaim audits............ $500 per claim auditClaim disbursements processing.... $120 per disbursementPremium collection processing... $ 25 per premium collectedActivity-base usage data for each line of insurance were retrieved from the corporate records and are shown below.

image

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.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: