You are a key Team Member in the ABC pilot initiative. The Claims area has been selected by Top Management as the initial implementation site. This selection is an excellent area staffed by dedicated hard working personnel. The ABC Team and Top Management have defined the project objectives. They are Calculate accurately the cost of the work activities Assign activity costs to major product lines Develop total cost and unit costs for the major product lines Determine accurate profitability of the major product lines Assess and identify activity improvement opportunities Develop performance measures for key activities in Claims Prepare an activity feedback report for Top Management Develop recommendations and an improvement action plan Phase I Costing Activities Salaries are $8 million for 2020. This includes all salaries and benefits recorded in the general ledger. Expenses are rolled up into one account called Equipment and Supplies. In 2020, expenses for equipment and supplies are $2 million. The following information determines the activity costs for shelling claims, setting up claims, investigating compensability, and managing cases. Activity Costs Salary costs are assigned to activities based on the actual hours doing the work. An electronic data collection system with bar coding provides us with the following hours. Activity Actual Hours Shelling claims 26,000 Setting up claims 39,000 Investigating compensability 65,000 Managing cases 130,000 Total Hours 260,000 The cost of equipment and supplies is distributed among the activities based on dollars. Activity Dollar Amount Shelling claims $200,000 Setting up claims $250,000 Investigating compensability $50,000 Managing cases $1,500,000 Total Dollars $2,000,000 Shelling Claims This activity involves first report of injury distribution, entering data, flagging issues for review, and distribution to Management. Based on time spent the following hours are available. 20,800 hours of shelling claims are for Key Accounts and 5,200 hours are for Business Lines. Setting Up Claims This work involves verifying the policy, coverage, and type of claim. There would be a determination of medical only or lost time. The setup of the claim is completed in this step. There is a direct correlation between the number of data fields entered and the work and cost incurred. The Key Accounts had 45,000 fields entered and the Business Lines required 100,000 for a total of 145,000 fields entered. 1% of the 145,000 fields entered required additional entry time due to poor information. Investigating Compensability Compensability investigations include the contact and requesting medical documents. Consideration of jurisdictional rules and statutes is factored into the decision process. A decision to accept or deny the claim is then made. The number of contacts has been recorded by the staff. Key Accounts were contacted 7,250 times and Business Lines involved 3,000 contacts. The number of complaints are tracked for quality purposes. They totaled 500 in 2020. Managing cases You've done a study of the managing cases activity and collected detailed information. Managing cases includes requesting treatment plans, rehab nurse considerations, identifying options, medical management, claimant control and payments. It is determined to use the number of individual episodes for ABC purposes. They are as follows: Account type Number of episodes Key Accounts 50,000 Business Lines 5,000 Sales Revenue The controller reports that sales and claims for 2020 were as follows for each Major Product Line Sales Account type Sales Key Accounts $10,000,000 Business Lines $5,000,000 Claims Account type Claims Key Accounts 2,000 Business Lines 2,300 Analysis Using the information in the Claims case study, complete the ABC system below. What is the total cost for Key Accounts?___________________________________ What are the profit margin dollars (Sales-Cost) for Key Accounts?_______________ What is the profit margin percentage ((Sales-Cost)/Sales) *100 for Key Accounts?___________________________________________________________ What are the sales and cost per claim for Key Accounts?______________________ What is the total cost for Business Lines?___________________________________ What are the profit margin dollars and percentage for Business Lines?____________ What are the sales and cost per claim for Business Lines?_____________________ What conclusions can we draw from this information? ________________________ ___________________________________________________________________ What recommendations could we suggest based on this ABC analysis? _____________________________________________________________________________________________________________________________________________________________________________________________________