An insurance company has the following profitability analysis of its services Li

Question

An insurance company has the following profitability analysis of its services

                                 Life Insurance    Auto Insurance   Home Insurance

Revenues                     $5,000,000      $10,000,000       $3,000,000

Commissions                (1,000,000)     (2,000,000)        (600,000)

Payments                     (3,000,000)     (7,300,000)       (2,000,000)

Fixed Costs                   (500,000)         (500,000)         (500,000)

Profit                            $500,000         $200,000         ($100,000)

The fixzed cost are disrtibuted equally among the services and are not avoidable if one of the services is dropped. What is the profitability of the remaining services if all services with losses are dropped

Explanation / Answer

Details Life Insurance Auto Insurance Home Insurance Revenues $5,000,000 $10,000,000 $3,000,000 Less: Expenses Commissions -1,000,000 -2,000,000 -600,000 Payments -3,000,000 -7,300,000 -2,000,000 Fixed costs ($500,000) -500,000 -500,000 Profit $500,000 200,000 -100,000 Life Insurance Auto Insurance The fixed costs are distributed equallly among the services are not avoidable if one of the services is dropped. If We take Life Insurance, and Auto Insurance services then the profitability of these two Revenues $5,000,000 $10,000,000 Less: Expenses Commission -1,000,000 -2,000,000 Payments -3,000,000 -7,300,000 Fixed Costs ($1,500,000/2=$750,000) -750,000 -750,000 Profit $250,000 ($50,000)

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