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	$	147,000
Assistant branch manager salary		63,000
Branch manager salary		85,000
Total	$	295,000

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	5	%	72	%	19	%	4	%	100	%
Assistant branch manager salary	16	%	15	%	22	%	47	%	100	%
Branch manager salary	5	%	0	%	17	%	78	%	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	230	new accounts opened
Processing deposits and withdrawals	52,000	deposits and withdrawals processed
Processing other customer transactions	800	other customer transactions processed

Required:

Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal places.)

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	9	per direct labor-hour
Machine processing	$	5	per machine-hour
Machine setups	$	45	per setup
Production orders	$	170	per order
Shipments	$	115	per shipment
Product sustaining	$	875	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,025	40
Machine-hours	3,000	30
Machine setups	17	3
Production orders	17	3
Shipments	34	3
Product sustaining	3	3

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

Teller wages	147,000
Assistant branch manager salary	63,000
Branch manager salary	85,000
Total	295,000
Percentages
	Opening Accounts	Processing Deposits and Withdrawals	Processing Other Customer Transactions	Other Activities	Totals
Teller wages	5	72	19	4	100
Assistant branch manager salary	16	15	22	47	100
Branch manager salary	5	0	17	78	100
	Opening Accounts	Processing Deposits and Withdrawals	Processing Other Customer Transactions	Other Activities	Totals
Teller wages	7,350	105,840	27,930	5,880	147,000
Assistant branch manager salary	10,080	9,450	13,860	29,610	63,000
Branch manager salary	4,250	-	14,450	66,300	85,000
Total	21,680	115,290	56,240	101,790	295,000
Activity Rate = Total Overheads/Total Driver
Opening Accounts	94.26	per account
Processing Deposits and Withdrawals	2.22	per deposit/withdrawal
Processing Other Customer Transactions	70.30	per transaction
	K425	M67
Supporting direct labor	9,225	360
Machine processing	15,000	150
Machine setups	765	135
Production orders	2,890	510
Shipments	3,910	345
Product sustaining	2,625	2,625
Total overhead cost assigned	34,415	4,125