Case Questions for Gibson Insurance Company

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. Compare to the total support costs reported using the old allocation bases in Exhibit 2 and provide comments on the major differences.

2. 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?

3. Is there room for improvement in the means by which the corporate support costs are allocated under Hamptons new approach? Why, or why not?

4. 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.

Exhibit 2 GIBSON INSURANCE COMPANY Summary of Product Line and Business-Unit Support Cost Allocations Using the Number of Policies as the Allocation Basis ($13,920,000169,240 policies =$82.25/ policy ) Exhibit 2 GIBSON INSURANCE COMPANY Summary of Product Line and Business-Unit Support Cost Allocations Using the Number of Policies as the Allocation Basis ($13,920,000169,240 policies =$82.25/ policy )