1.As its next step, the team gathers information in Table 5 and calculates a rate for each of the functions based on the associated volumes. Use the information in Table 5 to calculate cost rates for the functions identified. Is this information sufficient for decision making? Why or why not? Referring back to his discussion with the chief actuary, Greg identifies two activities to begin developing activity-based costs: the cost to issue life insurance products and the cost to service them. The project team defines the activities encompassing the cost to issue a policy as the cost to receive and process applications, underwrite policies and print, and collate and mail policies (termed "issuance"). The cost to maintain policies is defined as the cost of storing policy information, updating policy information as needed, responding to requests for service on insurance policies, the payment of claims and benefits, and the associated computer costs.
2. Use the information provided in Table 6 to calculate the cost to issue a life insurance policy, including receiving and processing applications for each product.
3. Use the information from Table 7 to calculate the costs to service and maintain a policy for each product. Assume that AXE Life has defined the cost to service and maintain a policy as the customer service costs, call center costs, and costs to adjudicate and pay claims. What do you notice about the costs per policy? Is there other information that would make this analysis more useful?
4. An activity-based costing system would provide AXE Life with an understanding of the costs to develop, sell, and service their products. How can AXE Life use this information to improve the efficiency and cost effectiveness of their operations?