ABSTRACT Gibson Insurance Company (GIC) faces a challenge during the current year. GIC’s current cost allocation system must be revised to accommodate the implementation of a new management planning and performance management system. The goal is to better allocate GIC’s corporate support-service costs to the business lines and business units in a result of more precise pricing strategies, sales compensation and improved cost control. We have analyzed GIC’s situation based on the given information, and concluded with a solution to improve the old cost allocation system. The new cost allocation uses adjusted cost bases which better reflects to the actual usage for new and existing policies. More support-service costs are assigned to new …show more content…
Compton’s costs have increased by $1,348,365 because it sold more cases of new life insurances than the other two business units. Drawbacks of the New Support-Service Costs Allocation Even though the currently used direct method is simple and less costly in terms of implementation, it ignores the interactions among the service departments. For example, the Other Corporate Support may also provide services to the other three support-services cost centers. If managers of business units are not vigilant, the over-used support-services costs may be passed onto them in the form of higher cost allocations. Second, in terms of the allocation bases, the new approach has been improved tremendously from the previous system; however, there are still downsides to it. The new system allocates policy acquisition costs by the number of steps required to verify a new policy application. This neglects different costs associated with various procedures during verification. Certain procedures are more costly than others. By relying on the number of steps in allocating acquisition cost, the system cannot reflect the cost discrepancy of numerous procedures accurately. The new system also uses the number of incoming customer calls to allocate customer service costs. Customer calls vary in time as well as costs, so using the number of calls as the allocation base does
Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are
What is a “traditional” society? A society based on historical customs, values, morals or beliefs that are handed down from generation to generation? Today’s society is a far cry from the comfort of tradition. It has evolved and is comprised of vastly different demographics, economics, social-cultural influences and household arrangements. Marketing must target these non-traditional sectors to be effective. This process can be challenging, but performing in-depth market research can help a company excel at their marketing efforts.
There are many differences between each colony even though some may seem very similar. When looked at Virginia and Maryland may seem similar in many ways, besides the fact Virginia was made into a colony for buying and selling while selling shares. Virginia had many joint-stock companies which were used so colonists could buy invest in different companies by buying shares from the company. Virginia also made most profits off of buying and selling mostly tobacco. The colonists who lived in Virginia relied on tobacco and the profits from it. Until tobacco caused inflation and ruined field. Virginia settlers searched for gold a lot of the time as well while looking for a passage to the Indes.
The operation manager for JBI suggested considering that Saver Superstore is an easy to deal with partner unlike some other customers that make the business spent a lot of time on their rush orders .This comment brought Johnson to wonder about the customer service costs structure and allocation system. The current system allocates these costs based the revenue generated by each customer which assign a large share to Saver Superstore the biggest one.
One of the best aspects of the way the time-driven ABC system was put into place at Kemps was how efficiently and accurately management determined the main issues with the current cost system and responded with appropriate and relevant solutions. For example, one of the greatest problems the company was facing was that many of its operating costs were spread out equally over a customer base that was growing more diverse and demanding more personalized and varied service, effectively cutting or potentially eliminating entirely Kemps’ profit margins for a product. Therefore,
The following allocation of advertising campaign budget was used to estimate number of new policies sold:
3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:
1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems with Wilkersons cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Our conclusion is, that they should not adopt
• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx,
The costing approach should be based on per Transaction Basis rather than on per kit or per pound basis because of the following reasons:
INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to
As the company continues to grow at a tremendous rate, the organizational structure became more complicated for the managers to maintain. Additionally, the Association is unsure of how to deal with the growth, and continue to preserve their company philosophy of “people supported first” at the same time. When the company was small their informal way managing the support service was a great fit, however, with more people constantly being supported, a more structural way of overseeing the expanding support service infrastructure needed to be established.
Device an implementation strategy that would guarantee the support of the divisions presidents for the shared customer service center.
"Insurance is a legal contract that protects people from the financial costs that result from loss of life, loss of health, lawsuits or property damage."(Nielson.) This protection is given to the customer in exchange for a monthly payment to the company. This is a legal contract which is known as a policy, binds the customer to the insurance company for the duration of the policy. Insurance, whether it be life, health or auto, helps customers feel safe from everyday risks that can happen in life. Most insurance is optional, although some states enforce a law that automobile insurance must be purchased in order to register a car. Automobile insurance is very important. It helps the policy holder to protect their car