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Headquarter's Overhead Cost Allocation in Korea Auto Insuran

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by

Jessie Lin

on 4 April 2014

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Transcript of Headquarter's Overhead Cost Allocation in Korea Auto Insuran

IT Team
Components:
Branch PC maintenance
Headquarters IT system support
Branch IT system support
Employee training
Korean Auto Insurance Co. Inc.
Outline
Background
Financial industry heavily
Consequences
Distort reports of branch performances
Demotivate workers
Activity-Based
Cost Allocation
- Assigns to the activities that are actually demanding the resources from Headquarters
Problem
Inefficient and inappropriate allocation method
Distortion of Branch Report Performances
Demotivation
NO
Various Cost Centers
OS Team
Components:
Training of sales people
Operating performance evaluation and reporting
Handling traffic accident cases
General Administrative Team
Components:
Payroll administration
Performance evaluation
Education and training
Headquarters building and maintenance
Branch building maintenance
Marketing
Little causal relationship between the advertisements and branch performances

Did not benefit a specific branch more than the others
Investment
Costs
did not
differ much across different branches

Activities were
independent
from branch activities
1. Problem
Liability insurance for automobile is
Various Cost Centers
Costs are related to:
Number of
employees
and
PC units
Headquarters'
Overhead Cost Allocation

LARGE
REVENUE
HQ's overhead cost
NET INCOME
Costs are related to the number of employees: 82 ->
45
(Taejon Branch)
(Hard Work of employee not reflected)
1.
Cost Driver
Number of employees
Number of PC units
2.
3.
INCENTIVE TO MAX. PROFIT
2007 2008
82 45
41 40
1.
2.
REGULATED
by government
MANDATORY
2. Background
3. Consequences
4. Solution
-- More logical manner
Costs of Handling Accident Cases
NUMBER OF ACCIDENT CASES

2007 2008
Whole Company 512 531
Taejon Branch 54 31
- Assign to activities that are the real cause of the overhead
Taejon Branch Cost Structure
Should be allocated equally across branches
THANK YOU
Employees
DATA!!!!!!
Full transcript