Jin Kim

Topics: Cost accounting, Cost, Revenue Pages: 3 (836 words) Published: September 23, 2013
Jin Kim, manager of Taejon City branch of Korea Auto Insurance in South Korea discovered that there was big problem in the headquarters' overhead cost allocation when he was preparing for the branch operation report.

Taejon was a rapidly growing city. with the hard work Kim, the Taejon branch raised insurance revenues. However, the net income of the Taejon branch was much lower than for the prior year. And this attributed to the inappropriate cost accounting systems.

For the underlying cause of applying this accounting method, it was believed that the Korean government imposed heavy regulation and over-protection over financial industry by providing specific operating guidelines. And the management of auto insurance company was therefore deprived of operating autonomy, tending to loosely adopt the simplest or least controversial methods.

Differences in the cost structure of each branch were not considered in the process. Consequently, some branched were allocated a large portion of overhead, but they actually did not benefited much from headquarters' resources. This costing method also led to penalization to expansion of branch, resulting in lower net income.

To solve this problem, Kim prepared a more relevant and accurate operating report based on an alternative overhead allocation method that used more appropriate cost drivers that current revenue amount.

Jin Kim, manager of Taejon City branch of Korea Auto Insurance in South Korea discovered that there was big problem in the headquarters' overhead cost allocation when he was preparing for the branch operation report.

Taejon was a rapidly growing city. with the hard work Kim, the Taejon branch raised insurance revenues. However, the net income of the Taejon branch was much lower than for the prior year. And this attributed to the inappropriate cost accounting systems.

For the underlying cause of applying this accounting method, it was believed that the Korean government imposed heavy...
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