Gibson Insurance Company
Overview
Gibson Insurance Company has tasked Rebecca Hampton, the controller, with reviewing the company 's allocation of corporate support costs in order to better assign the cost attributed to product lines and business units. This is important because it would help to provide better information for pricing decisions, sales compensation, and focus on areas in cost improvement. Gibson sells two categories of financial products: annuities and life insurance. They are both sold by in-house sales agents. Gibson decided to start purchasing other corporations in order to quickly grow the company’s customer base and its assets under management (AUM).
GIC acquired Compton Insurance Services and Midwest Mutual Insurance Company, and although they all sold the same services, the prices and features were different. Gibson had a decision to make: keep the new acquisitions as separate legal entities, or completely absorb them into its corporate system. GIC chose to keep them as separate legal entities, and treat them as wholly owned subsidiaries for legal and financial reporting purposes.
Rebecca decided to re-evaluate the cost allocation structure. She chose to list them under 4 categories: Policy Acquisition, Customer Service, Sales and Marketing, and Corporate Overhead.
All Relevant Issues
Gibson Insurance main issue is its cost allocation system that allocates support costs to its various product lines based on total number of policies. This provided for an inadequate application of resources for each business unit and product line. For example, selling a new policy takes more resources and effort than maintaining an in-force policy. Another concern is a decline in profitability although the sales volumes are increasing. This is possibly due to hidden cost problems or incorrectly set prices. After a breakdown of support cost, Gibson also had a issue with possible inefficiency of processes. Hampton felt as though they used to many resources with selling
Gibson Insurance Company has tasked Rebecca Hampton, the controller, with reviewing the company 's allocation of corporate support costs in order to better assign the cost attributed to product lines and business units. This is important because it would help to provide better information for pricing decisions, sales compensation, and focus on areas in cost improvement. Gibson sells two categories of financial products: annuities and life insurance. They are both sold by in-house sales agents. Gibson decided to start purchasing other corporations in order to quickly grow the company’s customer base and its assets under management (AUM).
GIC acquired Compton Insurance Services and Midwest Mutual Insurance Company, and although they all sold the same services, the prices and features were different. Gibson had a decision to make: keep the new acquisitions as separate legal entities, or completely absorb them into its corporate system. GIC chose to keep them as separate legal entities, and treat them as wholly owned subsidiaries for legal and financial reporting purposes.
Rebecca decided to re-evaluate the cost allocation structure. She chose to list them under 4 categories: Policy Acquisition, Customer Service, Sales and Marketing, and Corporate Overhead.
All Relevant Issues
Gibson Insurance main issue is its cost allocation system that allocates support costs to its various product lines based on total number of policies. This provided for an inadequate application of resources for each business unit and product line. For example, selling a new policy takes more resources and effort than maintaining an in-force policy. Another concern is a decline in profitability although the sales volumes are increasing. This is possibly due to hidden cost problems or incorrectly set prices. After a breakdown of support cost, Gibson also had a issue with possible inefficiency of processes. Hampton felt as though they used to many resources with selling