Taejon Branch Insurance Accounting Anal

Topics: Resource allocation, Cost accounting, Allocation Pages: 2 (622 words) Published: December 12, 2014
Fairly reflecting branches’ performance is important for the company’s profitability. However, the current overhead cost applying method is unfair to branches due to irrelevant cost applied, inappropriate cost allocation method used and penalizing branches cost reduction method resulting in misleading information to efficiently allocate resources and provide inappropriate incentives for employees. While overhead cost should be spread across operating branches, overhead cost without direct relationship with branches’ operation is harmful in reflecting performances. For examples, Headquarters’ IT system support, activities of investment team and nationwide advertisement costs. Gaining from investment activities does not benefit branches and nationwide advertisement does not benefit one branch more than others. Yet a total of 28.4 million irrelevant overhead cost is applied across branches. The current overhead cost applying method is unfair to branches that perform better with the same or less resources used. While overhead costs is calculated and apply on branches according to their revenue, many of the costs can be spread more accordingly with more accurate cost drivers. Such costs including branches’ PC maintenance cost, employees training cost, payroll and personnel evaluation cost. The number of PC and employees are more accurate cost drivers to evaluate the overhead costs. In 2008, Taejon branch has its number of employees decreased from 85 to 45 while revenue increased by 10 minion. The overhead cost applied from training cost still increase because the current method only take revenue into account. This result in a much larger amount of costs applied to the branch than the cost that it actually incurred. In other words, it means higher profitability branches are paying a proportion of costs for less profitable branches. One of the indirect cost, the cost of handling traffic accident cases is accounted for the most cost incurred at the headquarters. Taejon...
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