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The operations vice president of Security Home Bank has been interested in investigating the efficiency of...

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 $ 152,000
Assistant branch manager salary 63,000
Branch manager salary 94,000
Total $ 309,000

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 4 % 69 % 20 % 7 % 100 %
Assistant branch manager salary 13 % 13 % 21 % 53 % 100 %
Branch manager salary 4 % 0 % 15 % 81 % 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 205 new accounts opened
Processing deposits and withdrawals 45,500 deposits and withdrawals processed
Processing other customer transactions 1,250 other customer transactions processed

Homework Answers

Answer #1
Opening Accounts Processing Deposits and Withdrawals Processing Other Customer Transactions Other Activities Total
Teller wages 6080 104880 30400 10640 152000
Assistant branch manager salary 8190 8190 13230 33390 63000
Branch manager salary 3760 0 14100 76140 94000
Total 18030 113070 57730 120170 309000
Activity cost pool Activity rate
Opening Accounts 87.95 per account opened =18030/205
Processing Deposits and Withdrawals 2.49 per deposit or withdrawal =113070/45500
Processing Other Customer Transactions 46.18 per Other Customer Transaction =57730/1250
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