Headquarters’ Overhead Cost Allocation at Korea Auto Insurance Co. Inc Analysis
1. Problem:
Incorrect overhead allocation method
2. Cause:
Internal: Incorrect method adopted
External: Owners are mandated to purchase the liability insurance, economic growth; restrict by government (heavy regulation) low autonomy
3. Influence: Target become hard to be reached, low incentives, wrong decision shall be made
4. Conclusion: Replace the current method with an alternative method: relative i.e. using costing method which have different bases for respective overhead generated from departments to allocate overhead
1. BACKGROUND
Opportunity: Market growth; Go
Kim’s 策略：cut cost The approaches that Kim has taken
But finally result: doesn’t match expectation
2. Problem
Measures that Kim took (eg cut off employees,tec)
Graph A：Cost allocated increase!!!!!
WHY?
Wrong method. Specific to each team.
Effectiveness (elaborated by the data below)
Data: to show that the measures are not effective (due to revenue-based allocation)
Government-(incentives)-wrong allocate method-cost up-net I down (not willing to change since it’s the easiest way and stable)
How come out??:
First of all, I will introduce a little bit about the background especially for the Taejon branch which is our main focus in this case to give you a better understanding. And clarify the opportunities and policies.
Secondly, I will point out the fact of the unexpected performance, and find out the causes.
Thirdly, I would like to discuss more about how this cause turned out and its affect to the operation report. And I will collaborate with specific examples.
At that time, the Taejon city was growing rapidly, as government key central offices moved in, and developed large industrial and residential areas around, etc. New freeways and electric railways were built which attracted more immigrants to this city and expand the market as a result. So the headquarter tended to put more attention on this region in order to capture greater market share in the future.
And
Incorrect overhead allocation method
2. Cause:
Internal: Incorrect method adopted
External: Owners are mandated to purchase the liability insurance, economic growth; restrict by government (heavy regulation) low autonomy
3. Influence: Target become hard to be reached, low incentives, wrong decision shall be made
4. Conclusion: Replace the current method with an alternative method: relative i.e. using costing method which have different bases for respective overhead generated from departments to allocate overhead
1. BACKGROUND
Opportunity: Market growth; Go
Kim’s 策略：cut cost The approaches that Kim has taken
But finally result: doesn’t match expectation
2. Problem
Measures that Kim took (eg cut off employees,tec)
Graph A：Cost allocated increase!!!!!
WHY?
Wrong method. Specific to each team.
Effectiveness (elaborated by the data below)
Data: to show that the measures are not effective (due to revenue-based allocation)
Government-(incentives)-wrong allocate method-cost up-net I down (not willing to change since it’s the easiest way and stable)
How come out??:
First of all, I will introduce a little bit about the background especially for the Taejon branch which is our main focus in this case to give you a better understanding. And clarify the opportunities and policies.
Secondly, I will point out the fact of the unexpected performance, and find out the causes.
Thirdly, I would like to discuss more about how this cause turned out and its affect to the operation report. And I will collaborate with specific examples.
At that time, the Taejon city was growing rapidly, as government key central offices moved in, and developed large industrial and residential areas around, etc. New freeways and electric railways were built which attracted more immigrants to this city and expand the market as a result. So the headquarter tended to put more attention on this region in order to capture greater market share in the future.
And