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.

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:

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:

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:

Required:

1. Compute the activity rates for the activity-based costing system.

 

Explanation

 

Teller wages:

Opening accounts = $143,000 × 5% = $7,150

Processing deposits and withdrawals = $143,000 × 74% = $105,820

Processing other customer transactions = $143,000 × 16% = $22,880

Other activities = $143,000 × 5% = $7,150

Assistant branch manager salary:

Opening accounts = $68,000 × 13% = $8,840

Processing deposits and withdrawals = $68,000 × 14% = $9,520

Processing other customer transactions = $68,000 × 29% = $19,720

Other activities = $68,000 × 44% = $29,920

Branch manager salary:

Opening accounts = $94,000 × 5% = $4,700

Processing deposits and withdrawals = $94,000 × 0% = $0

Processing other customer transactions = $94,000 × 23% = $21,620

Other activities = $94,000 × 72% = $67,680

Computation of activity rates:

 

Thanks