MATRIX EQUATIONS IN RECIPROCAL COST ALLOCATION: AN APPLICATION IN THE TAKAFUL INDUSTRY IN MALAYSIA

Abstract

Shared and outsourced services have been generally allowed by the regulator (Bank Negara Malaysia, BNM) for commercial expediency and enhanced competitiveness of takaful companies in Malaysia. The different departments usually have a system of transferring the costs to each function; however the reciprocal method is rarely chosen. This study aims to analyze some of the methods of cost allocation through linear equations which will allow a large number of departmental cost transfers on Microsoft Excel. The study shows some relevant findings towards takaful operators’ decision on which method to adopt. The findings illustrates how the excel solver efficiently simplifies the calculation of reciprocal method of allocation which are generally avoided due to its complex computations.