Gibson Insurance Company 3b3v1d

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arlose rye #fiestapam ore ;)

1. Calculate the unit cost per policy for new and in-force annuity and life insurance policies using the new allocation bases. In addition, calculate the total costs to be reported by product for each legal business unit entity.

2. Why would Hampton want to track that information by product even if that level of detail was not required by regulators? Better and appropriate allocation approach can help management obtain more accurate insight on product profitability and make correct product pricing decisions. It will also help them improve cost management by identifying the specific cost items attributable to each product.

3. Will the new cost allocation information help Gibson Insurance establish better pricing guidelines for the various annuities and life insurance products sold by each legal business unit entity? Why or why not? The new cost allocation can help Gibson Insurance Company establish better pricing guidelines for the annuities and life insurance because it allocates costs based on the appropriate cost items incurred by each product. Determining activity cost pools and the costs incurred by each product in these activities will identify the ‘true’ cost of the product; thus, establishing the appropriate benchmark for pricing decisions. 4. Is there room for improvement in the means by which the corporate costs are allocated under Hampton’s new approach? If yes, in what way(s)? If no, why not? Yes, the new approach can be improved by taking into consideration the difference in the features of the products sold by each legal business entity. This may entail a different basis of allocation, hence a difference in the cost allocation. For instance, the whole life insurance policy, in of the number of customer service, would necessitate more customer calls than the term life insurance policy; thus, the cost allocation may need to be adjusted to reflect these differences in the incurrence of costs due to the variations in the said product features for each legal business entity.