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

Umbrella Insurance Company carries three major lines of insurance: auto, workers compensation, and homeowners. The company has prepared the following report for 20Y2: 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. a. Complete the product profitability report through the administrative activities. b. Determine the underwriting income as a percent of premium revenue. c. Determine the operating income as a percent of premium revenue, rounded to one decimal place. d. Interpret the report.

Apr 08 2020 View more View Less

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