Question details

Accounting questions
$ 50.00

Process Activity Analysis for a Service Company

Columbia 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

$110,400

 

Adjusting claim

331,200

 

Paying claim

110,400

 

Total

$552,000

 

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 6,900 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 70% 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 10% 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.

Columbia Insurance Company

Individual activity cost to the total process cost

 

Activity

Cost

Percent of Total Process

Receiving claim

$

%

Adjusting claim

%

Paying claim

%

Total

$

%

b.  Determine the average total process cost per claim payment, assuming 6,900 total claims. Round to the nearest whole dollar.
$ per paid 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.

Columbia Insurance Company

Changes in the activity costs

 

Activity

Activity Cost Prior to Improvement

Activity Cost After Improvement

Activity Cost Savings (Cost)

Receiving claim

$

$

$

Adjusting claim

Paying claim

Total

$

$

$

d.  Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 6,900 total claims. Round to the nearest cent.
$ per paid claim

 question 2

Lean Accounting

Optic Matrix Inc. manufactures and assembles automobile instrument panels for both Yokohama Motors and Detroit Motors. The process consists of a just-in-time product cell for each customer's instrument assembly. The data that follow concern only the Yokohama just-in-time cell.

For the year, Optic Matrix Inc. budgeted the following costs for the Yokohama production cell:

Conversion Cost Categories

Budget

Labor

$142,600

 

Supplies

54,000

 

Utilities

19,400

 

   Total

 

$216,000

 

       

Optic Matrix Inc. plans 3,600 hours of production for the Yokohama cell for the year. The materials cost is $51 per instrument assembly. Each assembly requires 15 minutes of cell assembly time. There was no November 1 inventory for either Raw and In Process Inventory or Finished Goods Inventory.

The following summary events took place in the Yokohama cell during November:

a.    Electronic parts and wiring were purchased to produce 12,250 instrument assemblies in November.

b.    Conversion costs were applied for the production of 11,650 units in November.

c.     11,420 units were started, completed, and transferred to finished goods in November.

d.    11,080 units were shipped to customers at a price of $240 per unit.

If required, round to the nearest cent.

Required:

1.  Determine the budgeted cell conversion cost per hour.
$ per hour

2.  Determine the budgeted cell conversion cost per unit.
$ per unit

3.  Journalize the summary transactions (a) through (d).

a.

 

 
 

 

 

       

b.

 

 
 

 

 

       

c.

 

 
 

 

 

       

d. Sale

 

 
 

 

 

       

Cost

 

 
 

 

 

4.  Determine the ending balance in Raw and In Process Inventory and Finished Goods Inventory.

Raw and In Process Inventory

$

Finished Goods Inventory

$

5.  Lean accounting is different from traditional accounting because it is more   and uses   control.

 

 

 

 

 

question 3

 

The administrator of Hope Hospital has been asked to perform an activity analysis of the emergency room (ER). The ER activities include cost of quality and other patient care activities. The lab tests and transportation are hospital services external to the ER for determining external failure costs. The result of the activity analysis is summarized as follows:

 

 

 

1

Activities

Activity Cost

2

Patient registration

$6,100.00

3

Verifying patient information

9,500.00

4

Assigning patients

12,900.00

5

Searching/waiting for doctor

8,000.00

6

Doctor exam

4,600.00

7

Waiting for transport

17,500.00

8

Transporting patients

15,800.00

9

Verifying lab orders

14,300.00

10

Searching for equipment

7,900.00

11

Incorrect labs

12,900.00

12

Lab tests

36,600.00

13

Counting supplies

33,200.00

14

Looking for supplies

6,900.00

15

Staff training

3,800.00

16

Total

$190,000.00

 

Required:

1.

Review the Pareto Charts in the panels. Select the Pareto chart the best represents these activities.

2.

Classify the activities into prevention, appraisal, internal failure, external failure, and other patient care activities. Classify the activities into value-added and non-value-added activities.

3.

Use the activity cost information to determine the percentages of total ER costs that are prevention, appraisal, internal failure, external failure, and other patient care activities.*

4.

Determine the percentages of the total ER costs that are value- and non-value-added.*

5.

Interpret the information.

 

* Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

 

Amount Descriptions

 

Appraisal

 

External failure

 

Internal failure

 

Non-value-added

 

Other patient care

 

Prevention

 

Value-added

 

 

2. Classify the activities into prevention, appraisal, internal failure, external failure, and other patient care activities. Classify the activities into value-added and non-value-added activities.

Activity

Activity Cost

Cost of Quality Classification

Value-Added/Non-Value-Added Classification

Patient registration

6,100

   

   

Verifying patient information

9,500

   

   

Assigning patients

12,900

   

   

Searching/waiting for doctor

8,000

   

   

Doctor exam

4,600

   

   

Waiting for transport

17,500

   

   

Transporting patients

15,800

   

   

Verifying lab orders

14,300

   

   

Searching for equipment

7,900

   

   

Incorrect labs

12,900

   

   

Lab tests

36,600

   

   

Counting supplies

33,200

   

   

Looking for supplies

6,900

   

   

Staff training

3,800

   

   

 

 

3. Use the activity cost information to determine the percentages of total ER costs that are prevention, appraisal, internal failure, external failure, and other patient care activities. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

 

 

 

1

Quality Cost Classification

Activity Cost

Percent of Total Department Cost

2

3

4

5

6

7

Total

 

 

4. Determine the percentages of the total ER costs that are value- and non-value-added. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

 

 

 

1

 

Activity Cost

Percent of Total Department Cost

2

3

4

Total

 

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