Baller Financial is a banking services company that offers many different types

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 = 54,000 accounts   Checking account cost pools:

Annual activity information related to cost drivers:

Calculate the overhead cost per account for the Money Market Checking.

Cost Pool Cost Cost Drivers Returned check costs $2,790,000 Number of returned checks Checking account reconciliation costs 51,000 Number of account reconciliation requests New account setup 637,000 Number of new accounts Copies of cancelled checks 383,000 Number of cancelled check copy requests Online banking web site maintenance 180,000 Per product group (type of account)

Explanation / Answer

Hi,

Please find the answer as follows:

Total Overhead Cost (Money Market Checking) = 2790000*18000/197000 + 51000*420/383000 + 637000*15000/53000 + 383000*60000/92000 + 180000*1/10 = 703045.41 or 703045

Overhead Cost Per Account = Total Overhead Cost (Money Market Checking)/Number of Accounts = 703045.41/54000 = $13.01

Answer is $13.01.

Thanks.

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