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Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payme Receiving Clalm Adjusting Člam An activity analysis revealed that the cost of these activities wa Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 This process includes only the cost of processing the claim payr variable to the number of claims adjusted. The process received, adjusted, and paid 5,000 claims during tỉ To improve the cost of this process, management has determin adjusted but would be accepted upon the insured's evidence of adjustment. It is also estimated that the additional effort to seç a. Develop a table showing the percent of individual activity co Statewide Insurance Company

Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payme Receiving Clalm Adjusting Člam An activity analysis revealed that the cost of these activities wa Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 This process includes only the cost of processing the claim payr variable to the number of claims adjusted. The process received, adjusted, and paid 5,000 claims during tỉ To improve the cost of this process, management has determin adjusted but would be accepted upon the insured's evidence of adjustment. It is also estimated that the additional effort to seç a. Develop a table showing the percent of individual activity co Statewide Insurance Company

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Claim Paying Claim An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 00 would be adjusted. It is estimated that 65% 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 15% to the "receiving claim" activity cost. a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required. Statewide Insurance Company Individual activity cost to the total process cost Percent of Activities Activity Cost Total Process Receiving claim $ % Adjusting claim % Paying claim % Total %
Transcribed Image Text:Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Claim Paying Claim An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 00 would be adjusted. It is estimated that 65% 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 15% to the "receiving claim" activity cost. a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required. Statewide Insurance Company Individual activity cost to the total process cost Percent of Activities Activity Cost Total Process Receiving claim $ % Adjusting claim % Paying claim % Total %
b. Determine the average total process cost per claim payment, assuming 5,000 total claims. Round to the nearest whole dollar. $4 per paid claim 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 Activity Cost After Improvement Activity Cost Saving Activity Cost Prior Activities to Improvement Receiving claim $ Adjusting claim Paying claim Totals d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,000 total claims. Round to the nearest cent. $4 per paid claim
Transcribed Image Text:b. Determine the average total process cost per claim payment, assuming 5,000 total claims. Round to the nearest whole dollar. $4 per paid claim 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 Activity Cost After Improvement Activity Cost Saving Activity Cost Prior Activities to Improvement Receiving claim $ Adjusting claim Paying claim Totals d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,000 total claims. Round to the nearest cent. $4 per paid claim
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