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 $ 154,000 Assistant branch manager salary 68,000 Branch manager salary 94,000 Total $ 316,000 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 3 % 67 % 18 % 12 % 100 % Assistant branch manager salary 12 % 14 % 23 % 51 % 100 % Branch manager salary 3 % 0 % 17 % 80 % 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 255 new accounts opened Processing deposits and withdrawals 50,000 deposits and withdrawals processed Processing other customer transactions 900 other customer transactions processed Required: 1. Compute the activity rates for the activity-based costing system.

Answer 1

Computation of activity rate

	Opening accounts	Processing deposits and withdrawals	Processing other customer transactions	Other activities	Total
Distribution of cost
Teller wages	4620 (154000*3%)	103180 (154000*67%)	27720 (154000*18%)	18480 (154000*12%)	154000
Assistant branch manager salary	8160 (68000*12%)	9520 (68000*14%)	15640 (68000*23%)	34680 (68000*51%)	68000
Branch manger salary	2820 (94000*3%)	-	15980 (94000*17%)	75200 (94000*80%)	94000
Total cost	15600	112700	59340
Number of activity	255	50000	9000	-
Activity rate	$61.176	$2.254	$6.59	-

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