To: KAI Board of Directors

From: Jin Kim, Taejon Branch Manager

Date: 16 October 2015
Subject: Cost Allocation for KAI
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Dear Board of Directors,

This memo is written in a bid to express concerns regarding to the current cost allocation method.
The current costing method penalize revenue earning branches with higher cost being allocated to
the respective region. This will discourage the staffs morale to perform the best and adversely
affect the company in long run. After careful evaluation, we propose that Senior Management
consider using activity base cost allocation method as an alternative due to its accuracy of cost
measuring.