You are required to prepare a proposal on the potential benefits and costs of implementing an Activity-based costing (ABC) system to determine customer profitability for a local bank. The bank currently uses a traditional costing system. The clients of Kangaroo Commercial Bank are regional residents in the Northern part. The bank considers extending its operation across some metropolitans, to serve the retail banking and investment demands of its clients.

a. ABC system requires a setting of operational activities and activity drivers. In identifying activity driver which mainly causes cost to be incurred at an activity level, what important factors should be considered ? Explain to management why you consider these important.

b. Using at least two academic research articles to support your background research, write a minor report (in 500-600 words) to advise the management of the commercial bank on the potential benefits and cost associated with implementing an ABC system.