Activity-Based Costing for a Service Company Bounce Back Insurance Company carries three major lines of insurance: auto, workers' compensation, and homeowners. The company has prepared the following report: Bounce Back Insurance Company Product Profitability Report For the Year Ended December 31 Auto Workers' Compensation Homeowners Premium revenue Estimated claims Underwriting income $5,800,000 (4,060,000) $6,250,000 $8,200,000 $1,740,000 (4,375,000) $1,875,000 (5,740,000) $2,460,000 Underwriting income as a percent of premium revenue 30% 30% 30% Auto Workers' Compensation Homeowners Number of new policies Number of canceled policies Number of audited claims Number of claim disbursements Number of premiums collected 1,330 1,400 4,100 490 300 2,200 390 110 950 470 220 850 8,500 1,900 15,200 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. 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: Premium revenue Estimated claims Activity New policy processing Cancellation processing Claim audits Claim disbursements processing Premium collection processing Activity Rates $110 per new policy $180 per cancellation $330 per claim audit $100 per disbursement $25 per premium collected Activity-base usage data for each line of insurance were retrieved from the corporate records as follows: Bounce Back Insurance Company Product Profitability Report For the Year Ended December 31 Auto Workers' Comp. Homeowners Underwriting income. $ Administrative activities: New policy processing $ $ Cancellation processing Claim audits Claim disbursements processing Premium collection processing Total administrative expenses Operating income $ $