The operations vice president of Security Home Bank has been interested in inves
ID: 2554357 • Letter: T
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 69,000
Branch manager salary 86,000
Total $ 301,000
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
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:
Required:
1. Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal places.)
Opening Accounts Processing Deposits and Withdrawals Processing Other Customer Transactions Other Activities Totals Teller wages 3 % 66 % 19 % 12 % 100 % Assistant branch manager salary 10 % 16 % 26 % 48 % 100 % Branch manager salary 3 % 0 % 15 % 82 % 100 %Explanation / Answer
Opening Accounts Processing Deposits and Withdrawals Processing Other Customer Transactions Other Activities Teller wages 4380 96360 27740 17520 Assistant branch manager salary 6900 11040 17940 33120 Branch manager salary 2580 0 12900 70520 Total 13860 107400 58580 121160 Activity Cost Pool Activity Rate Opening accounts 67.61 per account opened Processing deposits and withdrawals 2.07 per deposit or withdrawal Processing other customer transactions 40.40 per other customer transaction
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