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Porter Insurance Company has three lifes of insuranco: automoblie. property, and lifel The life lesurance segment has beea losine money for the past five quarters, and Leah Harper, Porter's controller; has donie an anatysis of that segrient. She has discovared that the comenission paid to the agent for the first year the policy is in place is 55 percent of the fint-year premium. The second - was commission is 20 percent; and all succending years a. commission equal to 5 percent of premiuns is paid. No saliarios are pald to apents- howevec, Dorter does advertise on television and in mayazinits. Last. year, the advertibing oxpense was $500,000. Tha fors rate (Dayout on claima) averagea 50 pereent, Adininistrative expenses equal $450,000 per Year. Revenue last year was $10,000,000 \{premiums\}. The percentape of polides of various lengths is as followe: Experience has shown that if a policy remains in effect for more than two years, it is rarely canceled. Leah is considering two altornative plans co turn this segmenk around. Flan 1 requres spending 5250,000 on iaproved cuatomen daim sarvice in hopes that the percentage of policies in effect wil take on the following distribution: fincluting direct mial spilicitation) would increase try $1,000,000. Riequired: 1. Prepare a variable-cossing income statement for last year for the life incurance segment of Porter Insurance Camparw. Enter ocerating incente in a positive amaunt. Enter an operating losk as a negative amount. 2. What impact.would plan 1 have on income? Fegment incorse by 1 3. What impact would plan 2 have on income? segment income by 1

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