Baller Financial is a banking services company that offers many different types
ID: 2623123 • Letter: B
Question
Baller Financial is a banking services company that offers many different types of checking accounts. The bank has recently adopted an activity-based costing system to assign costs to their various types of checking accounts. The following data relate to the money market checking accounts, one of the popular checking accounts, and the ABC cost pools:
Annual number of accounts = 50,000 accounts Checking account cost pools:
Cost Pool
Cost
Cost Drivers
Returned check costs
$2,880,000
Number of returned checks
Checking account reconciliation costs
53,000
Number of account reconciliation requests
New account setup
645,000
Number of new accounts
Copies of cancelled checks
386,000
Number of cancelled check copy requests
Online banking web site maintenance
183,000
Per product group (type of account)
Annual activity information related to cost drivers:
Cost Pool
All Products
Money Market Checking
Returned check
191,000 returned checks
18,000
Check reconciliation costs
386,000 checking account
420
New accounts
52,000 new accounts
15,000
Cancelled check copy requests
94,000 cancelled check
60,000
Web site costs
6 types of accounts
1
Calculate the overhead cost per account for the Money Market Checking
Cost Pool
Cost
Cost Drivers
Returned check costs
$2,880,000
Number of returned checks
Checking account reconciliation costs
53,000
Number of account reconciliation requests
New account setup
645,000
Number of new accounts
Copies of cancelled checks
386,000
Number of cancelled check copy requests
Online banking web site maintenance
183,000
Per product group (type of account)
Explanation / Answer
Hi,
Please find the answer as follows:
Total Overhead Cost (Money Market Checking) = 2880000*18000/191000 + 53000*420/386000 + 645000*15000/52000 + 386000*60000/94000 + 183000*1/6 = 734412
Overhead Cost Per Account = Total Overhead Cost (Money Market Checking)/Number of Accounts = 734412/50000 = $14.688 or $14.69
Thanks.
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