What is one advantage and one disadvantage of the current system?Show & Explain Answer In the current cost system Gibson uses the single overhead application rate company wide. Answer b:- In order to increase its customer base and the assets under management (AUM), the management at Gibson has decided to follow the strategy of corporate acquisition.Tags: Essay On Stages Of GriefTopics For Example EssaysCreative Writing Courses LeicesterMiddle School Research Paper RubricSapling Chemistry HomeworkDescriptive Essay VolleyballDissertation On Liberty And Necessity
The overheads are allocated on the basis of number of policies whether new or in force at the flat rate of $82.25 per policy for all the policies under both the Annuity plans and Life insurance plans.
The advantages and disadvantages of the current system are: a.
Further the calculation of cost of various activities and resources will enable the management to identify the major cost areas and the activities responsible for those costs. Thus the method of implementing the ABC technique is complex, time consuming and costly (Nayad, N., 2011) References: Nayad, N. Enter final values in table below after calculating.
The management can apply appropriate cost control measures to reduce the costs or increase their efficiency. Answer The activities required per policy for the four types of policies: The Cost pools and their activity rates are as under: Multiplying the Rate per cost driver with the activity level for each policy the support costs are calculated as under: Answers(Cost per policy) 3-2. Answer Average cost per policy under the ABC system for all the three companies are: The original rate was $82.25 per policy.
Allocation of the support function costs which are recorded at the corporate level to the different legal business units and the different products. To identify the direct and indirect cost: The objective of the cost accounting system is to allocate the cost accurately to the products.
Since every legal business unit performs functions for different products and also in a different manner the allocation of costs accurately to the various products is a big issue for Gibson. The direct cost can be traced to the product easily but the indirect cost cannot be traced to any products and so are required to be allocated to various products and service using some equitable basis of accounting.
Answer c:- The action of corporate acquisition raises the following issues: i.
Separate financial information from the legal business unit entities as required by the industry regulation ii. The two general requirements to redesign the cost accounting system of the company are: i.
Advantage: The single flat rate is easy to implement and use.
The indirect support costs are allocated to the different legal business unit and the product line at the same rate and so it is very easy to implement.