INFS305 Cost Group Project

-1. Discuss some of the alternatives and factors that Greg should consider when developing the expense allocation system. What are some of the costs and benefits of the alternatives?

2.            As shown in Table 1, Panel C, AXE Life is allocating all expenses of all departments to products. Are there any potential problems caused by allocating all expenses to products?

3.            Review the basis for the expense allocations under the current system (Table 1, Panel D) and identify functional centers that are using expense allocation bases that may be inconsistent with the activities that drive costs for that function. Using the information provided, suggest changes to the expense allocations for each function.

4.            Table 2 shows the results of the test month of the first iteration for the system. Greg has confirmed that all expenses were allocated. Review the expense allocations used in the first test and discuss the functional centers in which the expense allocation bases have been improved and those that still may need improvement.

5.            Table 4 shows the cost centers for the Life Insurance Projects functional center and a description of the activities in each cost center that make up that functional center. Based on this information, is the proposed basis for allocating expenses for these cost centers accurate? Why? How could it be improved?

6.            Discuss the steps Greg should take to complete the project and then maintain the expense allocation process going forward. Based on the data provided, what additional steps can be taken to improve the product expense allocation process at AXE Life?

7.            Activities can be categorized as unit, batch, product, and facility. Provide the definitions of each of these categories and then use the information in Table 2, Panel D, to categorize the activities as unit, batch, product, or facility.

•             8. Use the information in Table 5 to calculate cost rates for the functions identified.

Is this information sufficient for decision making? Why or why not?

                9.Use the information provided in Table 6 to calculate the cost to issue a life insurance policy, including receiving and processing applications for each product.

•             10. Use the information from Table 7 to calculate the costs to service and maintain a policy for each product. Assume that AXE Life has defined the cost to service and maintain a policy as the customer service costs, call center costs, and costs to adjudicate and pay claims. What do you notice about the costs per policy? Is there other information that would make this analysis more useful?

•             What do you notice about the costs per policy?

•             Is there other information that would make this analysis more useful?

•             11. An activity-based costing system would provide AXE Life with an understanding of the costs to develop, sell, and service their products. How can AXE Life use this information to improve the efficiency and cost effectiveness of their operations?

•             12. Greg also read an article that stated that using time-driven activity-based costing reduces the time and complexity associated with implementing an activity-based costing system. Based on his understanding, Greg believes that using a time-driven

system may be an efficient way of implementing activity-based costing. Describe how Greg can create an activity-based costing system and include the steps necessary if the team follows (a) the traditional approach to activity-based costing and (b) a time-driven activity-based costing approach.