![Financial & Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337119207/9781337119207_largeCoverImage.gif)
Concept explainers
Activity-based costing for a service company
Safely First Insurance Company tarries three major lines of insurance: auto, workers’ compensation, and homeowners. The company has prepared the following report:
Safety First Insurance Company Product Profitability Report For the Year Ended December 31 |
|||
Auto | Workers’ Compensation | Homeowners | |
Premium revenue | $5,750,000 | $6,240,000 | $8,160,000 |
Estimated claims | 4,312,500 | 4,680,000 | 6,120,000 |
Underwriting income | $1,437,500 | $1,560,000 | $2,040,000 |
Underwriting income as a percent of premium revenue | 25% | 25% | 25% |
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 he 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 | Activity Rates |
New policy processing | $120 per new policy |
Cancellation processing | $175 per cancellation |
Claim audits | $320 per claim audit |
Claim disbursements processing | $104 per disbursement |
Premium collection processing | $ 24 per premium collected |
Activity-base usage data for each line of insurance were retrieved from the corporate records as follows:
Auto | Workers’ Compensation | Homeowners | |
Number of new policies | 1,320 | 1,500 | 4,080 |
Number of canceled policies | 480 | 240 | 2,160 |
Number of audited claims | 385 | 120 | 960 |
Number of claim disbursements | 480 | 216 | 840 |
Number of premiums collected | 8,400 | 1,800 | 15,000 |
A. Complete the product profitability report through the administrative activities. Determine the income from operations as a percent of premium revenue, rounded to the nearest whole percent.
B. Interpret the report.
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 18 Solutions
Financial & Managerial Accounting
- Provide answerarrow_forwardCompute the depreciation chargearrow_forwardFor its inspecting cost pool, Brilliant Professor Mullen Company expected an overhead cost of $360,000 and an estimated 14,200 inspections. The actual overhead cost for that cost pool was $395,000 for 16,000 actual inspections. The activity-based overhead rate (ABOR) used to assign the costs of the inspecting cost pool to products is __.arrow_forward
- Can you help me with accounting questionsarrow_forwardCompute the depreciation charge for 2016arrow_forwardFor this year, Jackson Enterprises has $25,000 net earnings on the income statement and $10,000 net cash inflow from operating activities, $18,000 net cash outflow from investing activities, and $22,000 cash inflow from financing activities on the statement of cash flows. What is the accruals total reported for this period?arrow_forward
- What was the cost of goods sold?arrow_forwardTrue option? General accountingarrow_forwardAide Industries is a division of a major corporation. Data concerning the most recent year appears below: Sales Net operating income $18,310,000 $920,000 Average operating assets $6,300,000 The division's margin-is closest to:arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningFinancial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305961883/9781305961883_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337119207/9781337119207_smallCoverImage.gif)