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 $5,800,000 $6,250,000 $8,200,000 Estimated claims (4,060,000) (4,375,000) (5,740,000) Underwriting income $1,740,000 $1,875,000 $2,460,000 Underwriting income as a percent of premium revenue 30% 30% 30% 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 Activity Rates New policy processing Cancellation processing Claim audits $110 per new policy $180 per cancellation $330 per claim audit $100 per disbursement Claim disbursements processing Premium collection processing $25 per premium collected Activity-base usage data for each line of insurance were retrieved from the corporate records as follows: 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 1,330 1,400 4,100 Number of canceled policies 490 300 2,200 Number of audited claims 390 110 950 Number of claim disbursements 470 220 850 Number of premiums collected 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. Bounce Back Insurance Company Product Profitability Report For the Year Ended December 31 Auto Workers' Comp. Homeowners Premium revenue 5,800,000 6,250,000 8,200,000 Estimated claims 4,060,000 4,375,000 5,740,000 1,740,000 1,875,000 2,460,000 Underwriting income Administrative activities: New policy processing $ 146,300 154,000 $ 451,000 88,200 54,000 396,000 Cancellation processing Claim audits Claim disbursements processing 128,700 36,300 313,500 47,000 22,000 85,000 Premium collection processing 212,500 47,500 380,000 Total administrative expenses $ 622,700 313,800 $ 1,625,500 Operating income 1,117,300 1,561,200 $ 834,500 Operating income as a percent of premium revenue 19.26 X % 24.98 X % 10.18 X %