Question

Question 2

Great Eastern Holdings Limited is a leading insurance company in Singapore, Malaysia, and other Asian countries.  

The company operates through Life Assurance, General Assurance, and Shareholders segments. The Life Assurance segment provides life, long-term health and accident, annuity, and unit-linked insurance products. The General Assurance segment offers short term property and casualty products, including fire or burglary insurance contracts and/or business interruption contracts, and public liability insurance contracts; and short term medical and personal accident general insurance products. This segment distributes its products through bancassurance, agents, brokers, financial advisors, and direct channels. The Shareholders segment provides fund management services for various products, such as the Asia Pacific equities, and Asian and global fixed income securities portfolios for Singapore statutory boards, government-linked corporations, public and private companies, insurance companies, and charity organizations. The company is also involved in the asset management, and property investment.[1]  

In its 2017 Annual Report, the Chairman and Group CEO stated that they were glad to announce a set of sterling results that showed improvement in profitability. This clearly showed that the company has been able to deliver values for their shareholders and customers based on clear and consistent strategies and the harnessing of technology to further improve overall productivity and operational efficiency without accompanying increased in costs.[2]

In an article issued by McKinsey & Company, “Successfully reducing insurance operating costs”, it was observed that “costs at the bottom-quartile players can be more than double of that of top performers”.[3]

Source:

[1] http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/great_eastern_holding

[2] Great Eastern Holdings Limited, Annual Report 2017

[3] McKinsey & Company, “Successfully reducing insurance operating costs - Insights from McKinsey’s Insurance 360º benchmarking”


ACC203e Tutor-Marked Assignment
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 4 of 5
Required:

(a) Define costs and in the context of an insurance company like Great Eastern Holdings Limited, give four examples of costs.

(b) Explain why in the study of management accounting, so much attention is focused on costs and efficiency.

(c) Define cost objects. Give four examples of cost objects from the case above. Explain why managers might be interested in knowing the costs?

Answer 1

(a) Great Eastern is one of the oldest insurance establishments in Singapore. It is also a majority-owned subsidiary of Oversea-Chinese Banking Corp Limited (SGX: O39). Great Eastern provides mainly life assurance products and general insurance products.

Cost : A way of determining the net cost of life insurance to the insured. The total amount the insured gets back from the insurer is deducted from the total amount theinsured has paid to the insurer.

Four examples of Cost :

Great Eastern Holdings Limited, Annual Report 2017, Employee costs and related expenses, Interest expense paid on debt issued Dividends paid to shareholders .

(b) Management accounting is the broadest area of accounting and includes tax accounting, financial accounting, managerial accounting and internal auditing.

managerial accounting is linked to cost accounting, cost management, activity management and investment management. Managerial accounting involves generating information for internal users including all levels of management and others within the organization.

(c) A cost objectis anything for which a separate measurement of costs is desired. Examples include a product, aservice, a project, a customer, a brand category, an activity and a department.

Direct costs of a cost object are related to the particular cost object and can be traced to that cost object in aneconomically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object butcannot be traced to that cost object in an economically feasible (cost-effective) way.

Some examples of cost objects:

the materiality of the cost in question

available information-gathering technology

design of operations.