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 $145,000
Assistant branch manager salary 60,000
Branch manager salary 94,000
Total $299,000

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
Processing Processing
Opening Deposits Other Customer Other Totals
Accounts and Withdrawals Transactions Activities
Teller wages 4% 75% 18% 3% 100%
Assistant branch-
manager salary 8% 11% 27% 54% 100%
Branch-
manager salary 4% 0% 22% 74% 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 accounts opened
Processing deposits and withdrawals 51,000 deposits and withdrawals processed
Processing other customer transactions 1,150 other customer transactions processed


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

Activity cost pool Activity rate

Opening account ? Per account opened
Processing deposit and withdrawals ? Per deposit or withdrawal
Processing other customer transactions ? per other customer transaction

Answer 1

Answer:

The computation of the activity rates for the activity-based costing system is shown below:-

Explanation:

                        Opening     Processing     Processing     Other        Totals

                        accounts     Deposits and     other          activities

                                             Withdraws       Customers

                                                                      transactions

Teller wages  $5,800         $108,750          $26,100      $4,350     $145,000

Assistant

branch

manager

salary             $4,800         $6,600              $16,200       $32,400   $60,000

Branch

manager

salary           $3,760           $0                     $20,680      $69,560    $94,000

                    $14,360         $115,350           $62,980      $106,310

Working Note

                        Opening     Processing     Processing              Other    

                        accounts     Deposits and     other                  activities

                                             Withdraws       Customers

                                                                      transactions

Teller

wages ($145,000 × 4%)  ($145,000 × 75%) ($145,000 × 18%) ($145,000 × 3%)

Assistant

branch

manager

salary  ($60,000 × 8%) ($60,000 ×11%) ($60,000 × 27%) ($60,000 × 54%)

Branch

manager

salary ($94,000 × 4%) ($94,000 × 0%) ($94,000 × 22%) ($94,000 × 74%)

Activity                      Activity cost        Cost drivers      Activity rate

Opening accounts    $14,360                230                  $62.43

Processing deposits

and Withdrawals       $115,350              51,000              $2.26

Processing other

customers

transactions               $62,980             1,150                  $54.77