If the Loss Ratio on a Line of Insurance Is

question 101

Multiple Choice

If the loss ratio on a line of insurance is 70 percent and loss adjustment expenses are 33 percent,then the line is profitable before dividends if the ratio of

• A)commissions and other expenses are 15 percent and investment yields are 10 percent.
• B)commissions and other expenses are 5 percent and investment yields are 6 percent.
• C)commissions and other expenses are 16 percent and investment yields are 20 percent
• D)commissions and other expenses are 15 percent and investment yields are 12 percent.

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Definitions:

Predetermined Manufacturing Overhead Rates

Rates used to allocate manufacturing overhead costs to products, calculated before the actual costs or activity levels are known.

Direct Labour Hours

Direct labour hours refer to the amount of time spent by workers directly involved in the manufacturing process of a product or service.

Cost Driver

A factor that causes or relates to a change in the cost of an activity or product.

Activity-Based Budgeting (ABB)

A budgeting approach that determines the cost of activities necessary for producing a product or service, aiming to improve cost efficiency.