Case Analysis Gibson Final
Contributing Team members (with ID #)
Executive Summary
Name of Case: Gibson Insurance Company
Problem definition: State the central issue in the case, as well as related minor issues.
The central issue is the inefficiency in allocating cost for each product. This is because the existing support cost allocation method does not reflect its relative claim on the resources and thus, leads to insurance products being priced inaccurately in the company. Some of the minor issues include inefficiency in resource allocation and pricing decisions. Moreover, the profit figure has been decreasing although the sales volume increased. The corporate support cost has also been increasing alarmingly to sustain company’s growth since the recent acquisitions took place. Another issue would be inefficient and less streamlined processes in the company which leads to repeated steps and incurrence of additional costs.
Recommendations: State your overall aim, the specific actions to implement it, and how these actions will add value and/or save costs for the organisation.
Our overall aim is to introduce an efficient cost allocation method to improve pricing accuracy of products. This can be done by first; adopting activity based costing (ABC) method as suggested by Hampton instead of the existing simple costing method in the company. ABC recognizes the relationship between activities, cost and products which helps to allocate cost per unit to products more accurately. The main activities that run the business must be identified and analyzed to determine cost driver for each activity. We agree to the four major activities suggested by Hampton however, disagree on her cost allocation basis as it does not seem to be practical and accurate. For example, customer service cost should be allocated based on the number of call minutes instead of number of incoming customer calls as it is more accurate and as for the policy acquisition, the number of steps involved in processing
Executive Summary
Name of Case: Gibson Insurance Company
Problem definition: State the central issue in the case, as well as related minor issues.
The central issue is the inefficiency in allocating cost for each product. This is because the existing support cost allocation method does not reflect its relative claim on the resources and thus, leads to insurance products being priced inaccurately in the company. Some of the minor issues include inefficiency in resource allocation and pricing decisions. Moreover, the profit figure has been decreasing although the sales volume increased. The corporate support cost has also been increasing alarmingly to sustain company’s growth since the recent acquisitions took place. Another issue would be inefficient and less streamlined processes in the company which leads to repeated steps and incurrence of additional costs.
Recommendations: State your overall aim, the specific actions to implement it, and how these actions will add value and/or save costs for the organisation.
Our overall aim is to introduce an efficient cost allocation method to improve pricing accuracy of products. This can be done by first; adopting activity based costing (ABC) method as suggested by Hampton instead of the existing simple costing method in the company. ABC recognizes the relationship between activities, cost and products which helps to allocate cost per unit to products more accurately. The main activities that run the business must be identified and analyzed to determine cost driver for each activity. We agree to the four major activities suggested by Hampton however, disagree on her cost allocation basis as it does not seem to be practical and accurate. For example, customer service cost should be allocated based on the number of call minutes instead of number of incoming customer calls as it is more accurate and as for the policy acquisition, the number of steps involved in processing