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 Assistant branch manager salary Branch manager salary Total 145,000 73, 000 88,000 306, 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:

Answer 1

Solution

			Activity Rates
Opening Accounts			$                 85.89	per new account opened
Processing Deposits & Withdrawals			$                   2.30	per deposits & withdrawals processed
Processing other customer transactions			$                 44.41	per customer transaction processed

Working

	Working
Working	Overhead costs	Costs	Opening Accounts	Processing Deposits & Withdrawals	Processing other customer transactions	Other activities
A	Teller Wages	$     145,000.00	4%	69%	17%	10%
B= $145000 x A			$          5,800.00	$      100,050.00	$           24,650.00	$        14,500.00
C	Assistant Branch manager Salary	$       73,000.00	9%	19%	20%	52%
D = $73000 x C			$          6,570.00	$        13,870.00	$           14,600.00	$        37,960.00
E	Branch manager Salary	$       88,000.00	4%	0%	21%	75%
F = $88000 x E			$          3,520.00	$                        -	$           18,480.00	$        66,000.00
B+D+F	Total	$     306,000.00	$        15,890.00	$      113,920.00	$           57,730.00	$      118,460.00

.

	Cost Allocated	Total Activity	Activity Rates
Opening Accounts	$       15,890.00	185	$                 85.89	per new account opened
Processing Deposits & Withdrawals	$     113,920.00	49500	$                   2.30	per deposits & withdrawals processed
Processing other customer transactions	$       57,730.00	1300	$                 44.41	per customer transaction processed