BUS 503 Case Study 2 Spring 2014 Accounting Information for Decision-Making

BUS 503 Accounting Information for Decision-Making

Case Study # 2

Headquarters’ Overhead Cost Allocation at Korea Auto Insurance Co., Inc.

Spring 2014

Case Study Instructions

• Purpose –The purpose of this case study is to further your understanding of accounting and how to use accounting information to make business decisions, develop your critical thinking skills, and improve your business communication skills.
• Group Work -You are to work in your assigned case study teams and develop group answers. Each person is responsible for the entire assignment.
• Format and Length of paper –Prepare group answers to the questions below in a memo format. Make sure you clearly describe your assumptions (if any), organize your work in a logical manner, show all calculations with all numbers clearly labeled and all concepts thoroughly explained. If you include any Excel spreadsheets or exhibits, then make sure you properly label them and discuss and reference them in your answers. The use of appendices is allowed and does not count as part of the paper length count.
• Due Dates/Times –Refer to weekly schedule for due date. No late work will be accepted. The group paper is to be submitted in Blackboard (Drop Box section). Only one group member is to post the final version on behalf of the group. Before submission, make sure you are submitting the final version.

· Case Study Discussions – On the day we meet, you will be participating in an in-class discussion/presentation about the case study with your group. Each team member is required to participate and present. PowerPoint is to be used to explain the main points and findings/recommendations.In the bottom right hand corner of each slide display the name of the presenter.

• Grading – The grade is a group grade and will be assigned as such in Blackboard.

· Writing format –For the group paper, you must use Times New Roman with font size 12 and single line spacing. Your work presentation must be clear and legible as would be expected in most professional business settings. Use business syntax; slang is not appropriate.

· Evaluation of papers - Your paper will be evaluated based on content, development, presentation, proper use of language, and formatting.

· Academic Honest – plagiarism will result in a zero grade on the assignment assigned to the group.

Case Study Questions

1. Using the case data, prepare a Comparative Income Statement to show the net income of theTaejon branch as of 2007 and 2008 if the headquarters’ overhead costs were allocated by using the current method. Calculate the amount of revenue, direct and indirect costs, the change amount (in dollars) and the change rate (in percent) of theTaejon branch for these two years.

2. Analyze the Comparative Income Statement (# 1 above) and explain why theTaejon branch’s net income increased or decreased between these two years. What is the most significant factor that caused this result?

3. The current overhead cost driver, branch revenue, is criticized because it lacks any logical relationship to the overhead costs allocated by headquarters. Choose more appropriate cost drivers for the 17 overhead costs listed in case Exhibit 3. You may refer to descriptions of the 17 overhead costs incurred by the five teams at the headquarters.

4. Using your cost drivers (from # 3 above), prepare a Comparative Income Statement of theTaejon branch as of 2007 and 2008. Compare your answer to the result from # 1 above). Which method provides the best advantage to evaluate Kim’s performance? Why?