Chapter 12 differential analysis the key to decision making

First, read the following case on differential analysis.

Costs-for-Decision-Making-An-Instructional-Case-of-Relevant.pdf

Then, review the following files on this topic.

Differential Analysis Case .pptx

Cost for Decision Making Case Spreadsheet.xlsx

Finally, complete the following assignment.

Samantha Charleston (responsible for the analysis on the electronic check processing) became ill and asked you to complete her analysis. She has identified relevant costs and benefits. However, you need to complete Steps 4, 5 and 6 of the Decision Making model. Charleston asks that you finish her spreadsheet above. Provide your answers in the second tab of the spreadsheet, making sure to include calculations and explanations where appropriate.ISSN 1940-204X Costs for Decision Making: An Instructional Case of Relevant Costs and Differential Analysis of Cost Reduction Alternatives Scott McGregor, DPS, CMA, CPA Assistant Professor of Accounting Fairleigh Dickinson University INTRODUCTION IMPACT ON SHORT-TERM PROFITS This case is based on a real-life project and takes place in 2010 at the New York City headquarters for the United States operations of AC Global, Inc. (The real name has been changed.) AC Global is a multinational insurance company with its headquarters in France and annual revenue ranking in the top 10 companies globally. The company has significant operations in the United States, Europe, Japan, and Australia, and the operations in each country are separate insurance companies and operate with a large degree of autonomy. Recently, AC Global established insurance operations and a servicing center in India. The servicing center in India primarily provides some information technology (IT) support for the insurance operations in the United Kingdom (U.K.), Belgium, and France. The ongoing global recession has significantly decreased the profitability of AC Global, increasing the importance of reducing costs. AC Global’s operations in the U.S. (AC-US) sell life and annuity products and represent approximately 20% of the group’s life and annuity revenues. AC-US has approximately 3,000 employees, with about 1,000 employees based in the New York City headquarters. The remaining employees are located at the company’s service centers in New Jersey, Pennsylvania, and North Carolina. For an insurance company, there are four key line items on the income statement: premium revenue, investment income, benefits/claims expense, and operating expenses. Operating expenses provide the greatest opportunity for short-term improvement in earnings since the other line items are less controllable or the impacts of changes emerge over a long period of time. Investment income is primarily composed of interest and dividends on bonds and common stock investments and is not changed through operating actions. Premium revenue is composed of fees collected for providing insurance coverage and is only modestly impacted by current sales. Benefits and claims are paid to policyholders and their beneficiaries and are also difficult to impact in the short-term. The global economic downturn that began in late 2008 put intense pressure on the financial services industry. During 2009, U.S. sales of annuity products decreased by 30% while life insurance sales fell by 15%.1 Like the industry, AC Global has been negatively impacted by the economic downturn. AC-US premium revenue fell 8% cumulatively between 2007 and 2009.