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Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Clalm Adjusting Claim Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 15% to the "receiving claim" 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. Statewide Insurance Company Individual activity c ost to the total precess coct

Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Clalm Adjusting Claim Paying Clalm An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 15% to the "receiving claim" 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. Statewide Insurance Company Individual activity c ost to the total precess coct

Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Activities Required In Completing A Quality Audit
Section: Chapter Questions
Problem 65RSCQ
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b. Determine the average total process cost per claim payment, assuming 5,000 total claims. Round to the nearest whole dollar. 2$ 50 per paid claim Feedback Check My Work b. A process activity analysis can be used to determine the per unit cost of a claim based on the total costs of all of the activities involved in processing each claim. 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 Activity Cost After Improvement Activity Cost Prior Activity Cost Activities to Improvement Saving Receiving claim $ 62,500 71,875 -9,375 Adjusting claim 137,500 48,125 V 89,375 Paying claim 50,000 82,500 -32,500 Totals 2$ 250,000 47,500 X Feedback V Check My Work c. Management can use process activity analysis to improve a process. How does the change that management proposes improve efficiency or eliminate unnecessary activities? Determine the difference between the costs of Requirement (a) and the claim activities after the changes. d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,000 total claims. Round to the nearest cent. per paid claim
Transcribed Image Text:b. Determine the average total process cost per claim payment, assuming 5,000 total claims. Round to the nearest whole dollar. 2$ 50 per paid claim Feedback Check My Work b. A process activity analysis can be used to determine the per unit cost of a claim based on the total costs of all of the activities involved in processing each claim. 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 Activity Cost After Improvement Activity Cost Prior Activity Cost Activities to Improvement Saving Receiving claim $ 62,500 71,875 -9,375 Adjusting claim 137,500 48,125 V 89,375 Paying claim 50,000 82,500 -32,500 Totals 2$ 250,000 47,500 X Feedback V Check My Work c. Management can use process activity analysis to improve a process. How does the change that management proposes improve efficiency or eliminate unnecessary activities? Determine the difference between the costs of Requirement (a) and the claim activities after the changes. d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 5,000 total claims. Round to the nearest cent. per paid claim
Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Claim Paying Claim An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 15% to the "receiving claim" 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. Statewide Insurance Company Individual activity cost to the total process cost Percent of Activities Activity Cost Total Process Receiving claim $ 62,500 25 % Adjusting claim 137,500 % 55 Paying claim 50,000 20 % Total 250,000 100
Transcribed Image Text:Process Activity Analysis for a Service Company Statewide Insurance Company has a process for making payments on insurance claims as follows: Receiving Claim Adjusting Claim Paying Claim An activity analysis revealed that the cost of these activities was as follows: Receiving claim $62,500 Adjusting claim 137,500 Paying claim 50,000 Total $250,000 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 5,000 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 15% to the "receiving claim" 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. Statewide Insurance Company Individual activity cost to the total process cost Percent of Activities Activity Cost Total Process Receiving claim $ 62,500 25 % Adjusting claim 137,500 % 55 Paying claim 50,000 20 % Total 250,000 100
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