Umbrella Insurance Company carries three major lines of insurance: auto, workers' compensation, and homeowners. The company has prepared the following report for 20Y2:

Umbrella Insurance Company
Product Profitability Report
For the Year Ended December 31, 20Y2
		Auto		Workers' Compensation		Homeowners
Premium revenue		$ 7,200,000		$ 6,500,000		$ 9,200,000
Less estimated claims		(5,040,000)		(4,550,000)		(6,440,000)
Underwriting income		$ 2,160,000		$ 1,950,000		$ 2,760,000

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-base usage data for each line of insurance were retrieved from the corporate records and are shown below.

a. Complete the product profitability report through the administrative activities.

Umbrella Insurance Company
Product Profitability Report
For the Year Ended December 31, 20Y2
	Auto	Workers' Comp.	Homeowners
Premium revenue	$7,200,000	$6,500,000	$9,200,000
Less estimated claims	(5,040,000)	(4,550,000)	(6,440,000)
Underwriting income	$2,160,000	$1,950,000	$2,760,000
Administrative activities:
New policy processing	$fill in the blank 897d3b05afde053_1	$fill in the blank 897d3b05afde053_2	$fill in the blank 897d3b05afde053_3
Cancellation processing	fill in the blank 897d3b05afde053_4	fill in the blank 897d3b05afde053_5	fill in the blank 897d3b05afde053_6
Claim audits	fill in the blank 897d3b05afde053_7	fill in the blank 897d3b05afde053_8	fill in the blank 897d3b05afde053_9
Claim disbursements processing	fill in the blank 897d3b05afde053_10	fill in the blank 897d3b05afde053_11	fill in the blank 897d3b05afde053_12
Premium collection processing	fill in the blank 897d3b05afde053_13	fill in the blank 897d3b05afde053_14	fill in the blank 897d3b05afde053_15
Total administrative expenses	$fill in the blank 897d3b05afde053_16	$fill in the blank 897d3b05afde053_17	$fill in the blank 897d3b05afde053_18
Operating income	$fill in the blank 897d3b05afde053_19	$fill in the blank 897d3b05afde053_20	$fill in the blank 897d3b05afde053_21

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a. Underwriting income less administrative expenses is equal to income from operations.

b. Determine the underwriting income as a percent of premium revenue.

Auto	fill in the blank d667a105bfac065_1 %
Workers' Comp.	fill in the blank d667a105bfac065_2 %
Homeowners	fill in the blank d667a105bfac065_3 %

c. Determine the operating income as a percent of premium revenue, rounded to one decimal place.

Auto	fill in the blank d667a105bfac065_4 %
Workers' Comp.	fill in the blank d667a105bfac065_5 %
Homeowners	fill in the blank d667a105bfac065_6 %

  

Transcribed Image Text:

Activity Rates New policy processing $160 per new policy Cancellation processing $240 per cancellation Claim audits $500 per claim audit Claim disbursements $120 per disbursement processing $25 per premium Premium collection processing collected Activity Rates New policy processing $160 per new policy Cancellation processing $240 per cancellation Claim audits $500 per claim audit Claim disbursements $120 per disbursement processing $25 per premium Premium collection processing collected

Answer rating: 100% (QA)

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