The Trust Department of First National Bank offers two types of service, Basic and Premier.
Trust customers with basic service do not grant trust officers any discretion in managing their accounts. The trust officers or their assistants merely execute the actions prescribed by the customer and send monthly statements. Premier customers grant the trust officers broad discretion in managing their accounts, including the buying, selling, and distribution of trust assets.
For years, the Trust Department's vice president assumed that the cost of these services was based on the amount of time the trust officers spent working on the accounts. But after some ebbs and flows in the market and the advent of various software packages for executing transactions, the vice president has begun to suspect that the costs of the services may have shifted. He has gathered the following information about the activities required by each service:

Other information is as follows:

a. How many trust officer hours does each type of account consume, on average?
b. How many transactions does each type of service generate, on average?
c. Using the traditional method of allocating Trust Department costs, which is based on trust officer labor hours, compute the cost per account to provide services to Basic and Premier customers.
d. Using activity-based costing, compute the cost per account to provide services to Basic and Premiercustomers.

  • CreatedFebruary 21, 2014
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