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 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 Westfield branch of Security Home Bank has submitted the following cost data for last year:

Teller wages	$	146,000
Assistant branch manager salary		74,000
Branch manager salary		91,000
Total	$	311,000

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
	Opening Accounts		Processing Deposits and Withdrawals		Processing Other Customer Transactions		Other Activities		Totals
Teller wages	4	%	67	%	18	%	11	%	100	%
Assistant branch manager salary	14	%	19	%	27	%	40	%	100	%
Branch manager salary	4	%	0	%	18	%	78	%	100	%

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	Total Activity at the Westfield Branch
Opening accounts	240	new accounts opened
Processing deposits and withdrawals	48,000	deposits and withdrawals processed
Processing other customer transactions	1,150	other customer transactions processed

Required:

1. Compute the activity rates for the activity-based costing system.

Required: 1. Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal places.) Activity Rate Activity Cost Pool Opening accounts Processing deposits and withdrawals Processing other customer transactions per account opened per deposit or withdrawal per other customer transaction

Answer 1

First stage allocation

Distribution of Resource Consumption Across Activities
	Opening Accounts		Processing Deposits and Withdrawals		Processing Other Customer Transactions		Other Activities		Totals
Teller wages	5840		97820		26280		16060		146000
Assistant branch manager salary	10360		14060		19980		29600		74000
Branch manager salary	3640		0		16380		70980		91000
Total	19840		111880		62640		116640		311000

Calculate activity rate

Activity cost pool	Activity rate
Opening accounts (19840/240)	82.67 per account opened
Processing deposits and withdrawals (111880/48000)	2.33 per deposit and withdrawal
Processing other customer transaction (62640/1150)	54.47 per other customer transaction