Question

Friendly Bank is developing an activity based cost system for its teller department. A task force has identihed five different activities: 1. Process deposits 2. Process withdrawals 3. Answer customer inquiries 4. Sell negotiable instruments 5. Balance drawers By tracing the costs of operating the teller department to these five activities, the task force complied the following Information regarding support costs and activities for one of its suburban branches: Quantity Support Activity Purchase deposits Process withdrawals Estimated Cost $29.630 26,080 $24,860 4,860 4,290 $89.720 Activity Cost Driver Number of deposits processed Number of withdrawals processed Number of customer inquiries Number of negotiable instruments sold Number of drawers balanced Answer inquiries 33,250 22,750 45,000 1,100 1,300 Sell negotiable instruments Balance drawers 1. Compute the activity cost driver rates for each of the support activities. Use Excel! 2. The task force has developed the following list of activities for a typical checking account marketed to retired persons. Estimate the total monthly support costs for this checking account product. Use Excel!

Answer 1

1) Support Activity Activity Cost Driver Quantity Purchase deposits Number of deposit processed Process withdrawals Number of withdrawal processed Answer inquiries Number of consumer inquiry Sell negotiable instruments Number of negot. Instrument sold Balance drawers Number of drawer balanced Estimated Cost $29,630 $26,080 $24,860 $4,860 $4,290 $89,720 33,250 22,750 45,000 1,100 1,300 Activity Rate $0.89 $1.15 $0.55 $4.42 $3.30 per deposit processed per withdrawal processed per consumer inquiry per negot. Instrument sold per drawer balanced [Activity Rate = $29630 / 33250 = $0.89 per deposit processed] [Activity Rate = $26080/ 22750 = $1.15 per withdrawal processed] (Activity Rate = $24860 / 45000 = $0.55 per consumer inquiry] [Activity Rate = $4860 / 1100 = $4.42 per negot. Instrument sold] [Activity Rate = $4290 / 1300 = $3.3 per drawer balanced] 2) 2.3 6.0 Support Activity Activity Volume Rate Purchase deposits $0.89 Process withdrawals $1.15 Answer inquiries $0.55 Sell negotiable instruments 0.5 $4.42 Balance drawers $3.30 Monthly support cost for this checking account 2.1 Cost Assigned $2.05 $6.88 $1.16 $2.21 $0.00 $12.30 [2.3 x $0.89] [6 x $1.15] [2.1 x $0.55] [0.5 x $4.42] (0 x $3.30] 0.0 3) Management can use the above information either to: --> place greater control over costs associated with each checking account product or --> calculate and fix average periodic charges to be levied by bank on each checking account or --> find ways to reduce activity costs and serve checking account customers better but economically.