lysis revealed that the cost of these activities was as follows: Receiving claim $20,100 Adjusting claim 140,700 Paying claim 40,200 Total $201,000 This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted. The process received, adjusted, and paid 6,700 claims durin
Process Activity Analysis for a Service Company
Statewide Insurance Company has a process for making payments on insurance claims as follows:
An activity analysis revealed that the cost of these activities was as follows:
| Receiving claim | $20,100 | |
| Adjusting claim | 140,700 | |
| Paying claim | 40,200 | |
| Total | $201,000 |
This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted.
The process received, adjusted, and paid 6,700 claims during the period. All claims were treated identically in this process.
To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 60% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 5% to the "receiving claim" activity cost.
c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount is zero, leave the entry box blank. Use the minus sign to indicate an additional cost in the last column.
| Statewide Insurance Company | |||
| Changes in the activity costs | |||
| Activities | Activity Cost Prior to Improvement |
Activity Cost After Improvement |
Activity Cost Saving |
| Receiving claim | $fill in the blank 1ff336fe1048010_1 | $fill in the blank 1ff336fe1048010_2 | $fill in the blank 1ff336fe1048010_3 |
| Adjusting claim | fill in the blank 1ff336fe1048010_4 | fill in the blank 1ff336fe1048010_5 | fill in the blank 1ff336fe1048010_6 |
| Paying claim | fill in the blank 1ff336fe1048010_7 | fill in the blank 1ff336fe1048010_8 | fill in the blank 1ff336fe1048010_9 |
| Totals | $fill in the blank 1ff336fe1048010_10 | $fill in the blank 1ff336fe1048010_11 | $fill in the blank 1ff336fe1048010_12 |
d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 6,700 total claims. Round to the nearest cent.
$fill in the blank 4d35bf07306df9b_1 per paid claim
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
