The following diagram illustrates the tasks that an insurance company uses to process medical claims; the sequence of the tasks cannot be altered, and the individual tasks cannot be divided into shorter tasks (example: task 1 cannot be divided into two, 5-minute tasks). The output is called an Explanation of Benefits (EOB); one EOB is generated for each incoming claim.

OUTGOING

EOBs

Task No.	ACTIVITY	Task time Minutes/claim
1	Receiving claims	40
2	Verify procedural codes	30
3	Coordination of benefits	10
4	Determine benefit allowance	10
5	Final Decision & Outgoing explanation of benefits (EOB)	30

Formulas:

(remember to round-up with this formula)

throughput time is the total time that it takes for one unit go through a process from the time that it starts at (or enters) the first work station until that same unit exits the last work station.

Cycle time is the time between the completion of successive units of output (time/unit).

Use the spaces between the questions to write-in your answers (do not use the scantron for these questions). Be sure to show your work and to clearly indicate your answer or answers for each question; it would be a good idea to circle your answers to prevent confusion. A supplemental flow chart is provided for your convenience. You may show your work on the supplemental flow chart; if you do so, be sure to insert this flow chart into your exam.

For this problem set, this office is open 6 days per week for 6 actual working hours per day.

1. At present, one person is assigned to each task in this process. What is the cycle time of this process as it is presently staffed?

2. What is the utilization of this process as it is presently organized?

3. Given this offices work schedule, and the cycle time that you determined in question #1, how many claims can it process in one week given both of the following assumptions? (1) first thing Monday morning there is nothing in process, at any work station, from the end of the prior week, AND (both assumptions apply simultaneously) (2) during the week, the line is NOT emptied each night, rather claims are left in process at each work station, at the end of each day, so that processing resumes at all work stations first thing on Tuesday through Saturday mornings.

4. Change assumption #2 (in question 3) to the following (assumption #1 is unchanged): nothing is left in process at the end of each day; each morning, the line starts off empty each day. Now how many claims can be processed in one week?

5. Assuming that the cycle time determined in question #1 is sufficient to meet current demand, could you improve the utilization of this process? If yes, how would you do it (be specificusing a flow chart sketch may be helpful)?

Continue with question 6 on the next page.

6. Continuing from question 5, if you answered yes, what would be the new utilization? (If you answered no, leave this question blank.)

7. Suppose that the demand drops and the throughput rate needs to be cut in half. What cycle time would now be required?

8. Continuing from question 7, how would you combine these tasks into how many work stations to try to match the new required cycle time? Any combination must keep the tasks in sequence, and the existing tasks cannot be divided into smaller tasks. (HINT: The total task time that you determine for any one work station cannot exceed your answer to question 7; however, it can be less.)

QUESTION 5, 6 AND 7 ONLY

Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales $ 47,900 Costs 33,900 Taxable income Taxes (22%) $ 14,000 3,080 Net income $ 10,920 Dividends Addition to retained earnings $2,508 8,412 The balance sheet for the Heir Jordan Corporation follows. HEIR JORDAN CORPORATION Balance Sheet Assets Liabilities and Owners' Equity Current assets Current liabilities Cash $ 2,200 Accounts payable $ 4,000 Accounts receivable 5,000 Notes payable 5,100 Inventory 8,000 Total $ 9,100 Total $ 15,200 Long-term debt $22,000 Owners' equity Common stock and paid-in surplus Retained earnings Fixed assets Net plant and equipment $ 18,000 $36,600 2,700 Total $20,700 Total assets $ 51,800 Total liabilities and owners' equity $ 51,800 Prepare a pro forma balance sheet. All assets, costs, and accounts payable are proportionate to sales; and assuming an increase in sales of 13 percent, no new external debt or equity financing, and a constant payout ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Prepare a pro forma balance sheet. All assets, costs, and accounts payable are proportionate to sales; and assuming an increase in sales of 13 percent, no new external debt or equity financing, and a constant payout ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Assets Current assets Cash Accounts receivable Inventory Total HEIR JORDAN CORPORATION Pro Forma Balance Sheet Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable + Total Long-term debt Owners' equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners' equity Fixed assets Net plant and equipment Total assets Calculate the EFN. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) EFN