The operations vice president of Home Bank has been interested in investigating the efficiency of the bank's
Question:
The operations vice president of Home Bank has been interested in investigating the efficiency of the bank's operations. She has been particularly concerned about the costs of handling routine transactions at the bank and would like to compare these costs at the bank's various branches. If the branches with the most efficient operations can be identified, their methods can be studied and then replicated elsewhere. While the bank maintains meticulous records of wages and other costs, there has been no attempt thus far to show how those costs are related to the various services provided by the bank. The operations vice president has asked your help in conducting an activity-based costing study of bank operations. In particular, she would like to know the cost of opening an account, the cost of processing deposits and withdrawals, and the cost of processing other customer transactions.
The West Branch of Home Bank has submitted the following cost data for last year:
Teller wages | $160,000 | |
Assistant branch manager salary | 75,000 | |
Branch manager salary | 80,000 | |
Total | $315,000 |
Virtually all other costs of the branchrent, depreciation, utilities, and so onare organization sustaining costs that cannot be meaningfully assigned to individual customer transactions such as depositing checks.
In addition to the cost data above, the employees of West Branch have been interviewed concerning how their time was distributed last year across the activities included in the activity based costing study. The results and the annual activities are shown below:
Open Accounts | Process Deposits and Withdrawals | Process Other Customer Transactions | Other Activities | Total | |
Tellers | 5% | 65% | 20% | 10% | 100% |
Assistant Branch Manager | 15% | 5% | 30% | 50% | 100% |
Branch Manager | 5% | 0% | 10% | 85% | 100% |
Activity volume | 500 | 100,000 | 5,000 |
Required:
1. Prepare the first stage allocation for Activity Based Costing
2. Compute the activity rates for the ABC system.
3. Other branches of Home Bank have also computed their activity costs. Based on this information shown below what does this suggest concerning operations at West Branch?
Activity | Lowest Cost Among All Branches | |
Opening accounts | $26.75 per new account | |
Processing deposits and withdrawals | $ 1.24 per deposit or withdrawal | |
Processing other customer transactions | $11.86 per other customer transaction |
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer