Gibson Insurance Company
GIBSON INSURANCE COMPANY
Activity-Based Costing; Allocating Corporate Costs
DATE
OCT 22, 2012
CASE ANALYSIS
Gibson Insurance Company sells two types of financial products: annuities and life insurance, all sales are done by in-house agents. The annuities are tax deferred investments that offer scheduled payout options and lump sums to their investors. The life insurance policies pay benefits to the designated beneficiaries in the event the policyholder passes away.
At the end of their business year, Gibson is faced with a challenging task of implementing a new management planning and performance management system. Rebecca Hampton, Gibson’s controller, was asked, “to review the company’s allocation of corporate support costs in order to better assign the costs attributed to product lines and business units.” Management believes that by implementing this new approach, the company will be able to review in how the company is allocating its corporate support costs in order to better allocate the costs assign to its product lines and business units. Improving the cost allocations would allow management to obtain a more accurate approach to analyze its product profitability, provide thorough information for explicit product pricing decisions & sales agent compensation. This will also allow concentration in specific areas for cost improvement within the company.
In recent years, Gibson has expanded its size, this is one amongst many other reasons why their old system became insufficient. The current cost allocation system is no longer suitable to provide vital information for the management in making accurate pricing decisions, compensating their sales employees, and managing company costs. Therefore, it is imperative that a new cost allocation system be adopted. By evaluating Gibson’s current business practices and product lines, it will permit management to identify the issues they are facing. This will allow Gibson’s management to make
Activity-Based Costing; Allocating Corporate Costs
DATE
OCT 22, 2012
CASE ANALYSIS
Gibson Insurance Company sells two types of financial products: annuities and life insurance, all sales are done by in-house agents. The annuities are tax deferred investments that offer scheduled payout options and lump sums to their investors. The life insurance policies pay benefits to the designated beneficiaries in the event the policyholder passes away.
At the end of their business year, Gibson is faced with a challenging task of implementing a new management planning and performance management system. Rebecca Hampton, Gibson’s controller, was asked, “to review the company’s allocation of corporate support costs in order to better assign the costs attributed to product lines and business units.” Management believes that by implementing this new approach, the company will be able to review in how the company is allocating its corporate support costs in order to better allocate the costs assign to its product lines and business units. Improving the cost allocations would allow management to obtain a more accurate approach to analyze its product profitability, provide thorough information for explicit product pricing decisions & sales agent compensation. This will also allow concentration in specific areas for cost improvement within the company.
In recent years, Gibson has expanded its size, this is one amongst many other reasons why their old system became insufficient. The current cost allocation system is no longer suitable to provide vital information for the management in making accurate pricing decisions, compensating their sales employees, and managing company costs. Therefore, it is imperative that a new cost allocation system be adopted. By evaluating Gibson’s current business practices and product lines, it will permit management to identify the issues they are facing. This will allow Gibson’s management to make