Question

Case Study 2: (remember to include your calculations. Just an answer will not receive full credit.) You are the owner of a chain of 3 successful restaurants with the following number of seats at each location: airport – 340 seats; downtown – 218 seats; and suburban – 164 seats. 1. If the liability insurance premium is $16,000 per year, how much of that premium should be allocated to each of the restaurants based on percent of total seating capacity. 2. If you open a fourth restaurant at the beach that has 150 seats and the liability insurance premium increases by 18%, what is the new allocation of insurance premium among the 4 locations?

Answer 1

1. airport: $7535, downtown: $4831, suburban: $3634
2. airport: $7361, downtown: $4720, suburban: $3551, beach: $3248

Explanation:

You want the allocation of liability insurance based on seating capacity for 3 restaurants. After a 4th restaurant is added and insurance increases by 18%, you want the new allocation.

Solution

Effectively, the insurance premium is divided by the total number of seats at all restaurants. Then that per-seat allocation is multiplied by the number of seats. Here, we have elected to round to the nearest dollar.

1. 3 Restaurants

The calculator shows the allocation is ...

• airport: $7535
• downtown: $4831
• suburban: $3634

2. 4 Restaurants

After the 4th restaurant is added the premium increases by 18%, but the per-seat amount decreases due to the number of seats increasing by about 20.8%. The new allocation is ...

• airport: $7361
• downtown: $4720
• suburban: $3551
• beach: $3248