C

arlose
rye
#fiestapam
ore ;)

1. 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.

2. Why would Hampton want to track that information by product even if that level
of detail was not required by regulators?
Better and appropriate allocation approach can help management obtain more accurate
insight on product profitability and make correct product pricing decisions. It will also help
them improve cost management by identifying the specific cost items attributable to each
product.

3. Will the new support cost allocation information help Gibson Insurance
establish better pricing guidelines for the various annuities and life insurance
products sold by each legal business unit entity? Why or why not?
The new support cost allocation can help Gibson Insurance Company establish better pricing
guidelines for the annuities and life insurance because it allocates costs based on the
appropriate cost items incurred by each product. Determining activity cost pools and the
costs incurred by each product in these activities will identify the true cost of the product;
thus, establishing the appropriate benchmark for pricing decisions.
4. Is there room for improvement in the means by which the corporate support
costs are allocated under Hamptons new approach? If yes, in what way(s)? If no,
why not?
Yes, the new approach can be improved by taking into consideration the difference in the
features of the products sold by each legal business entity. This may entail a different basis
of allocation, hence a difference in the cost allocation. For instance, the whole life insurance
policy, in terms of the number of customer service, would necessitate more customer calls
than the term life insurance policy; thus, the cost allocation may need to be adjusted to
reflect these differences in the incurrence of costs due to the variations in the said product
features for each legal business entity.