Please answer the following questions about the Gibson Insurance Company case: Calculate the unit...

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Please answer the following questions about the Gibson Insurance Company case: Calculate the unit support cost per policy for new and in-force annuity and life insurance policies using the new allocation bases. In addition, calculate the total support costs to be reported by product for each legal business unit entity. Compare to the total support costs reported using the old allocation bases in Exhibit 2 and provide comments on the major differences. Why would Hampton want to track that information by product (computed above in question 1) even if that level of detail was not required by regulators? Is there room for improvement in the means by which the corporate support costs are allocated under Hampton’s new approach? Why, or why not? Estimate the amount of “Customer Service” support costs allocated to the product called “Annuities-New Policies-Midwest” under the old system. Also, estimate the amount of “Customer Service” support costs allocated to same product under the new system. Comment on what is driving the difference.

Prince · Accepted Answer

Q1 - Unit Cost
	Q1
	Support Cost	Basis of Allocation	Total Units	Total Cost	Cost per Unit
	Policy acquisition	Steps	103,680.00	$4,375,000.00	$42.19715
	Customer service	Calls	55,060.00	$2,426,000.00	$44.06102
	Sales and marketing	Contacts	454,400.00	$4,552,000.00	$10.01761
	Other corporate support	AUM	8601700000	$2,567,000.00	$0.00030
	No. of Policies
		Midwest	Gibsons	Compton	Total
	Annuities:
	New policies	10,000.00	8,625.00	1,215.00	19,840.00
	In-force  policies	45,000.00	36,200.00	4,700.00	85,900.00
	Subtotal	55,000.00	44,825.00	5,915.00	105,740.00
	Life insurance:
	New policies	1,250.00	3,450.00	8,100.00	12,800.00
	In-force  policies	5,600.00	13,500.00	31,600.00	50,700.00
	Subtotal	6,850.00	16,950.00	39,700.00	63,500.00
	Total	61,850.00	61,775.00	45,615.00	169,240.00
Q1 - Total Cost
	Cost Allocation using the new System
			Midwest	Gibsons	Compton	Total
	Annuities:

Please answer the following questions about the Gibson Insurance Company case: Calculate the unit support cost per policy for new and in-force annuity and life insurance policies using the new...

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