Gibson Insurance Company Essay

2863 Words Nov 21st, 2012 12 Pages
Activity-Based Costing; Allocating Corporate Costs

OCT 22, 2012


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
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2. Customer Service Costs - Allocate based on number of incoming customer calls
Justification: Number of policies have a positive relationship with the number of calls, means that when the number of policies increase therefore the number of calls will increase too. Because of its efficiency, the customer service is able to respond quicker in average of 0.5 calls for each new annuity policy and 0.2 calls for ach in-force annuity while per year. On the other hand, life insurance policyholders called in average of 0.6 times for new policies and 0.4 times for existing policies per year.

3. Sales and Marketing Costs - Allocate based on number of sales solicitations Justification: Because these costs are incurred to run each individual local sales office and Gibson’s agents have an average of 10 customer contacts for each annuity policy and 20 customer contacts for each life insurance. These contacts are conducted by phone calls or visits.

4. Other Corporate Overhead Costs - Allocate based on dollar value of AUM Justification: Since the remainder costs of product management, accounting, actuarial, human resources, investments, and senior leadership are consisted of
Gibson’s home office expenses therefore Rebecca considers that this new allocation is more relevant. She suggests that each new and in-force annuity product generated $50,000 in AUM while life insurance policies averaged $1,500 in

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