rocess Activity Analysis for a Service Company

Statewide Insurance Company has a process for making payments on insurance claims as follows:

An activity analysis revealed that the cost of these activities was as follows:

Receiving claim	$136,000
Adjusting claim	299,200
Paying claim	108,800
Total	$544,000

This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted.

The process received, adjusted, and paid 6,800 claims during the period. All claims were treated identically in this process.

To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 65% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 5% to the "receiving claim" activity cost.

Question Content Area

a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required.

Statewide Insurance Company Individual activity cost to the total process cost

Activities	Activity Cost	Percent of Total Process
Receiving claim	$fill in the blank 91ff91fedfedfe9_1	fill in the blank 91ff91fedfedfe9_2%
Adjusting claim	fill in the blank 91ff91fedfedfe9_3	fill in the blank 91ff91fedfedfe9_4%
Paying claim	fill in the blank 91ff91fedfedfe9_5	fill in the blank 91ff91fedfedfe9_6%
Total	$fill in the blank 91ff91fedfedfe9_7	fill in the blank 91ff91fedfedfe9_8%

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b. Determine the average total process cost per claim payment, assuming 6,800 total claims. Round to the nearest whole dollar. $fill in the blank cf1d22046041f9d_1 per paid claim

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c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount is zero, leave the entry box blank. Use the minus sign to indicate an additional cost in the last column.

Statewide Insurance Company Changes in the activity costs

Activities	Activity Cost Prior to Improvement	Activity Cost After Improvement	Activity Cost Saving
Receiving claim	$fill in the blank 2eaa78ff6fa0073_1	$fill in the blank 2eaa78ff6fa0073_2	$fill in the blank 2eaa78ff6fa0073_3
Adjusting claim	fill in the blank 2eaa78ff6fa0073_4	fill in the blank 2eaa78ff6fa0073_5	fill in the blank 2eaa78ff6fa0073_6
Paying claim	fill in the blank 2eaa78ff6fa0073_7	fill in the blank 2eaa78ff6fa0073_8	fill in the blank 2eaa78ff6fa0073_9
Totals	$fill in the blank 2eaa78ff6fa0073_10	$fill in the blank 2eaa78ff6fa0073_11	$fill in the blank 2eaa78ff6fa0073_12

Question Content Area

d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 6,800 total claims. Round to the nearest cent. $fill in the blank bff3d302801bf8a_1 per paid claim

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