Introduction
Gibson Insurance Company is faced with a challenge that is critical to the long-run sustainability of the company: how to use costing systems to operate more efficiently. With the growing size of the company in the recent years, the current cost allocation system is no longer suitable to provide vital information for the management in making pricing decisions, compensating employees, and managing costs. Therefore, it is essential that a new cost allocation system must be implemented to better measure the costs and gain insights to guide managerial decisions which can affect the organization’s efficiency. By evaluating Gibson’s current business practices and product lines, the report will identify issues and provide a rationale to utilize a new cost allocation system in order to increase efficiency and profitability.
Company Background
Gibson Insurance sells two different types of financial products: annuities and life insurance. Annuities are typically financial contracts that offer a re-occurring payment plan. Annuities consist of tax-deferred investments; this means that investors can place their pre-tax dollar income into various financial tools in order to decrease their income. The main goal of tax-deferred investments is to lower an individual’s income for an overall tax savings. Another product is a life insurance in which the policy holders contribute a certain amount of money per year in order to pay a lump sum to any benefactors if the policy holder is deceased. Both of these products are sold by agents who are employed directly by Gibson Insurance.
With the vision and mission to pursue a growth strategy for the next several years, the management implemented an acquisition plan. Acquiring other insurance firms would not only increase Gibson’s holdings, but it would also increase customer base. An increased potential customer base would allow its sales team to push for more sales and increase their assets under management. After...