Korea Auto Insurance Co. Inc. (Korea Auto Insurance) incurred both direct and indirect costs. Indirect costs accounted for a significant portion (41 per cent) of the total costs incurred. Nonetheless, they could be neither traceable nor rationally linked to specific sales actions.
Korea Auto Insurance now allocated indirect costs incurred by headquarters to divisions based on sales revenue. The Taejon City division supervisor not regarded as a reasonable approach using the quantity of sales revenue as an allocation base for overhead. Branch managers had complained that the allocation base that was current wasn't related to the level of genuine gains they received from the headquarters. They argued the allocation procedure distorted the operating performances of divisions as reflected in the publications. The manager of the Taejon branch indicated the ABC (activity-based cost) method be employed to solve the difficulties related to the present overhead allocation process.
PUBLICATION DATE: October 22, 2009 PRODUCT #: 909B14-HCB-ENG
This is just an excerpt. This case is about GLOBAL BUSINESS
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