Three cost drivers are used to estimate the cost of processing insurance claims. The cost drivers...
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. $500.00
b. $3.00
c. $503.75
d. $3.75
Homework Answers
Required answers is c. i.e $503.75
Working Note
= .50X1000 + 0.15X5 + .015X20
=500+0.75+ 3
= 503.75
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