The operations vice president of Security Home Bank has been interested in investigating the etticiency of the bahk has been particularly concerned about the costs of handling routine transactions at the bank and would like to compare these costs 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 to show how those costs are related to the various services provided by the bank. The operations vice president has asked your he in conducting an activity-based costing study of bank operations. In particular, she would like to know the cost of opening an accour the cost of processing deposits and withdrawals, and the cost of processing other customer transactions. operatioIS. 3 The Westfield branch of Security Home Bank has submitted the following cost data for last year: Teller wages Assistant branch manager salary Branch manager salary $ 160,000 75,000 80,000 Total $ 315,000 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Problem 1Q

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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
Assistant branch manager salary
Branch manager salary
$ 160,000
75,000
80,000
$ 315,000
Total
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
Dnocessina Other
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Opening
Processing Deposits
and Withdrawals
Customer
Other
Accounts
Transactions
Activities
Totals
Teller wages
Assistant branch manager salary
Branch manager salary
5%
20%
30%
65%
10%
100%
15%
5%
50%
100%
5%
0%
10%
85%
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
Opening accounts
Processing deposits and withdrawals
Processing other customer transactions
Total Activity at the Westfield Branch
500 new accounts opened
100,000 deposits and withdrawals processed
5,000 other customer transactions processed
Required:
1. Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal places.)
Activity Cost Pool
Activity Rate
Opening accounts
per account opened
Processing deposits and withdrawals
per deposit or withdrawal
Processing other customer transactions
per other customer transaction
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Solution:

First stage allocation of cost to activity cost pools
Particulars	Total Cost	Opening accounts		Processing deposits and withdrawls		Customer transactions		Other activities
Particulars	Total Cost	%	Amount	%	Amount	%	Amount	%	Amount
Teller Wages	$160,000.00	5%	$8,000.00	65%	$104,000.00	20%	$32,000.00	10%	$16,000.00
Assistant branch manager salary	$75,000.00	15%	$11,250.00	5%	$3,750.00	30%	$22,500.00	50%	$37,500.00
Branch manager salary	$80,000.00	5%	$4,000.00	0%	$0.00	10%	$8,000.00	85%	$68,000.00
Total	$315,000.00		$23,250.00		$107,750.00		$62,500.00		$121,500.00

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