1. Greg charges the project team to begin work on the second phase of the project, which is to use the expense allocation process to begin to develop activity-based costs.

2. As its next step, the team gathers information in Table 5 and calculates a rate for each of the functions based on the associated volumes. Use the information in Table 5 to calculate cost rates for the functions identified.

As its first step, the team is going to focus on developing the costs to receive life insurance applications manually and issue a life insurance policy. During July 2012, the company received 11,489 applications and issued 9,385 life insurance policies. Not all applications are issued policies, thus the team must calculate the cost to receive and process the applications and adjust those costs to reflect that approximately one out of five applications does not result in a policy being issued.

 
 

Table 5: Cost and Volume Data Department/Function Driver Volume Expense New Business Life New life policies 9,345 $ 191,525 New Applications Number of life applications 11,489 815,251 Policy Underwriting Number of life applications 11,489 1,610,825 Policy Issuance - Life Number of life policies issued 9,385 1,155,424 e-Policy Issuance - Life Number of electronic life policies 2,185 172,515 New Business Annuity New annuity policies 9,490 397,125 New Applications Number of annuity applications 9,925 1,215,241 Policy Issued New annuity policies 9,490 1,192,500 e-Policy Issuance - Annuity Number of electronic annuities 1,145 173,525 Customer Service Management Number of policies (all) 2,275,694 1,156,250 Call Center Number of calls 34,884 910,257 Life Inforce Management Number of life policies 1,735,251 1,115,497 Annuity Inforce Management Number of annuities 540,443 1,485,273 Annuity Surrenders/Payments Number of annuities 101,426 415,125 Claims Management Number of life claims 11,327 1,101,010 Life Claims Adjusters Number of life claims 11,327 1,415,000 Life Claims Support Number of life claims 11,327 1,227,904 Life Claims System Number of life claims 11,327 1,215,250 Life Insurance System Number of life policies 1,735,251 1,229,850 Annuity System Number of annuities 540,443 $1,201,525