Three Cost Drivers Are Used to Estimate the Cost of Processing

question 38

Multiple Choice

Three cost drivers are used to estimate the cost of processing insurance claims.The cost drivers are: (1) claim amount,(2) age of vehicle in accident and (3) age of driver in accident.The percentages attributable to the cost drivers are 50% for claim amount,and 15% for each of the other two cost drivers.What is the cost to process Claim #101? The claim amount is $1,000.The age of the vehicle is 5 years.The age of the driver is 20 years.

• A) $3.00
• B) $3.75
• C) $500
• D) $503.75

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Definitions:

Organic Fertilizer

Organic Fertilizer is a soil amendment derived from natural sources that supplies nutrients to plants and improves soil structure.

Operating Leverage

The extent to which a company can increase operating income by increasing revenue, attributable to the proportion of fixed costs in total costs.

Fixed Expenses

Costs that remain constant in total over a specified period, regardless of changes in the level of activity or volume of output.

Unit Variable Cost

The variable cost incurred to produce one unit of a product, such as materials or labor.