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

Umbrella Insurance Company carries three major lines of insurance: auto, workers’ compensation, and homeowners. The company has prepared the following report for 2013:

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.
b. Determine the underwriting income as a percent of premium revenue.
c. Determine the income from operations as a percent of premium revenue, rounded to one decimal.
d. Interpret thereport.

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UMBRELLA INSURANCE COMPANY Product Profitability Report For the Year Ended December 31, 2013 Premium revenue Less estimated claims Underwriting income Underwriting income as a percent Auto $7,200,000 5,040,000 $2,160,000 Workers Compensation S6,500,000 4,550,000 $1,950,000 Homeowners $9,200,000 6,440,000 $2,760,000 of premium revenue 30% 30% 30% Activity Rates New policy processing Cancellation processing Claim audits Claim disbursements processing Premium collection processing $160 per new policy $240 per cancellation $500 per claim audit $120 per disbursement $ 25 per premium collected Auto Workers' Comp. Number of new policies Number of canceled policies Number of audited claims Number of claim disbursements Number of premiums collectecd 1,500 350 320 400 7,500 1,450 250 100 180 1,500 Homeowners 4,100 2,000 700 750 12,000