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Process 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: This process includes only the cost of processing the daim 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 5,100 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 ciaims greater than $1,000 : claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of daim. Claims above $1,000 would be adjusted. It is estimated that 75% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additionai effort to segregate claims would add 5% to the "receiving ciaim" activity cost. 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. a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, i required. Statewide Insurance Company Individual activity cost to the total process cost b. Determine the average total process cost per daim payment, assumino 5,100 total daims. Round to the nearest whole dollar. per paid daim 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 b. Determine the average total process cost per daim payment, assuming 5,100 total daims, Round to the nearest whole dollar. per paid daim c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by managernent. 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 d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,100 total claims. Round to the nearest cent. 5 per paid claim

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