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:

1. 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.
2. b. Interpret the report.