Question

The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank's operations. She has been particularly concerned abott 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 Westfield branch of Security Home Bank has submitted the following cost data for last year: Teller wages Assistant branch manager salary Branch manager salary 158,000 73,000 91,000 $322,000 Total Virtually all other costs of the branch-rent, depreciation, utilities, and so on-are 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 the Westfield branch have been interviewed concerning how their time was distributed last year across the activities included in the activity-based costing study. The results of those interviews appear below: Distribution of Resource Consumption Across Activities Processing Deposits and withdrawals Processing Other Opening Accounts Other Customer Transactions Totals 100% 100% 100% Activities Teller wages Assistant branch manager salary Branch manager salary 20 % 4% 74% 2% 9% 15% 21% 55% 4% 0% 20% 76% The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year: Activity Opening accounts Processing deposits and withdrawals Processing other customer transactions Total Activity at the Westfield Branch 255 new accounts opened 51,000 deposits and withdrawals processed 1,050 other customer transactions processed Required: 1. Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal places.) Activity Cost Pool Activity Rate Opening accounts per account opened Processing deposits and withdrawals per deposit or with drawal Processing other customer transactions per other customer transaction LO

Answer 1

Question 5

Solution

	Activity Rates
Opening Accounts	$                 64.82	per new account opened
Processing Deposits & Withdrawals	$                   2.51	per deposits & withdrawals processed
Processing other customer transactions	$                 62.03	per customer transaction processed

Working

	Cost Allocated	Total Activity	Activity Rates
Opening Accounts	$    16,530.00	255	$                 64.82	per new account opened
Processing Deposits & Withdrawals	$ 127,870.00	51000	$                   2.51	per deposits & withdrawals processed
Processing other customer transactions	$    65,130.00	1050	$                 62.03	per customer transaction processed
Other activities	$ 112,470.00	NA	NA
Total	$ 322,000.00

.

Working
Overhead costs	Costs	Opening Accounts	Processing Deposits & Withdrawals	Processing other customer transactions	Other activities
Teller Wages	$ 158,000.00	4%	74%	20%	2%
		$          6,320.00	$      116,920.00	$       31,600.00	$       3,160.00
Assistant Branch manager Salary	$    73,000.00	9%	15%	21%	55%
		$          6,570.00	$        10,950.00	$       15,330.00	$    40,150.00
Branch manager Salary	$    91,000.00	4%	0%	20%	76%
		$          3,640.00	$                        -	$       18,200.00	$    69,160.00
Total	$ 322,000.00	$        16,530.00	$      127,870.00	$       65,130.00	$ 112,470.00

Question 6

Solution

Cost pool	ABC Cost
Order size	$           2,873.00
Customer orders	$              364.00
Product testing	$           1,332.00
selling	$ 7,455.00
Total Overhead cost	$ 12,024

Working

Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Order size	$                     16.90	170.00	$           2,873.00
Customer orders	$                   364.00	1.00	$              364.00
Product testing	$                     74.00	18.00	$           1,332.00
selling	$               1,491.00	5.00	$ 7,455.00
Total Overheads assigned			$         12,024.00