Axe Life Company Case Study

1. Since the expense allocations system should mirror the real company world, we should check if the current company´s organization works efficient. As AXE Life Company has a functional organi-zation structure with different cost centers in each function, we have to review if our costing sys-tem fits to the organizational needs. Due to the current system with an allocation at function level, there are no clear accountabilities at the product level. This lack of essential information about product expenses shows up, that we need more detailed information to control accountability at product level. This issue limits the number of alternatives. Since most of our costs are overhead, it is very important to allocate the costs as accurately as possible for

An additional information are the connections between core and support functions cost. This provides the information to improve efficiency in operation and in long term for costing as well. At least AXE get an understanding which products provides the best mar-gin, which allows the company to set a focus on high profit products.

12.

a)

1) Review the characteristics of costs and define how to allocate them compare their connected operations. Keep on focus the balance between accuracy and economical needs.

2) Split between core and support function/cost centers

3) Define the allocation base / cost driver for departments/function/cost center levels each by us-ing the activity cause-and-effect relationship of the results of step no. 2

4) Apply a method for allocating support costs to operating/production departments.

5) Select cost drivers are selected for newly formed cost pools (production/operating department overhead costs) and allocated the costs to the units of products / services.