Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 18, Problem 21E
Bounce Back Insurance Company carries three major lines of insurance: auto, workers’ compensation, and homeowners. The company has prepared the following report:
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 as follows:
- a. Complete the product profitability report through the administrative activities. Determine the operating income as a percent of premium revenue, rounded to the nearest whole percent.
- b. Interpret the report.
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Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by
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The total costs incurred in the five departments are:
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Determine the total costs in each of the three operating departments, after departmental…
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Comprehensive Insurance Company has two product lines, health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: Information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Operating Departments
Information technology.
Operations
Information technology
Operations
Claims processing
Sales
The total costs incurred in the five departments are:
Total costs
Support Departments
a
Direct Method
b. Step Method (Info Tech First)
Step Method (Operations First)
Information
Technology
10%
c Reciprocal Method
Operations
20%
$ 567,000
1,550,000
340,000
550,000
580,000
$3,587,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the…
Chapter 18 Solutions
Financial And Managerial Accounting
Ch. 18 - Why would management be concerned about the...Ch. 18 - Why would a manufacturing company with multiple...Ch. 18 - How do the multiple production department and the...Ch. 18 - Under what two conditions would the multiple...Ch. 18 - How does activity-based costing differ from the...Ch. 18 - Shipping, selling, marketing, sales order...Ch. 18 - Prob. 7DQCh. 18 - Under what circumstances might the activity-based...Ch. 18 - When might activity-based costing be preferred...Ch. 18 - Prob. 10DQ
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