Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 23P
Problem 2-19A Context-sensitive nature of cost behavior classifications
Seattle Bank’s start-up division establishes new branch banks. Each branch opens with three tellers. Total teller cost per branch is $96,000 per year. The three tellers combined can process up to 90,000 customer transactions per year. It a branch does not attain a volume of at least 60,000 transactions during its first year of operations, it is closed. If the demand for services exceeds 90,000 transactions, an additional teller is hired and the branch is transferred from the start-up division to regular operations.
Required
- a. What is the relevant range of activity for new branch banks?
- b. Determine the amount of teller cost in total and the average teller cost per transaction for a branch that processes 60,000, 70,000, 80,000, or 90,000 transactions. In this case (the activity base is the number of transactions for a specific branch), is the teller cost a fixed or a variable cost? Round your figures to two decimal points.
- c. Determine the amount of teller cost in total and the average teller cost per branch for Seattle Bank, assuming that the start-up division operates 10, 15, 20, or 25 branches. In this case (the activity base is the number of branches), is the teller cost a fixed or a variable cost?
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Problem 2-19A (Algo) Context-sensitive nature of cost behavior classifications LO 2-1
Vernon Bank's start-up division establishes new branch banks. Each branch opens with three tellers. Total teller cost per branch is
$96,000 per year. The three tellers combined can process up to 85,000 customer transactions per year. If a branch does not attain a
volume of at least 55,000 transactions during its first year of operations, it is closed. If the demand for services exceeds 85,00O
transactions, an additional teller is hired and the branch is transferred from the start-up division to regular operations.
Required
a. What is the relevant range of activity for new branch banks?
b. Determine the amount of teller cost in total and the average teller cost per transaction for a branch that processes 55,000, 65,000,
75,000, or 85,000 transactions. In this case (the activity base is the number of transactions for a specific branch), is the teller cost a
fixed or a variable cost?
c. Determine the…
Exercise 10-32 (Algo) Activity-Based Costing of Customers (LO 10-3, 4)
Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 5.50 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities.
Activity
Cost Driver
Cost
Driver Volume
Using ATM
Number of uses
$
1,950,000
2,600,000
uses
Visiting branch
Number of visits
1,170,000
195,000
visits
Processing transaction
Number of transactions
8,580,000
104,000,000
transactions
Managing functions
Total deposits
7,800,000
$
487,500,000
in deposits
Total overhead
$
19,500,000
Data on two representative customers follow.
Customer A
Customer B
ATM uses
100
200…
In-store branch at Lily location
In-store branch at Daisy location
Existing facilities
Return
15.00%
15.50%
12.00
Deviation
6.50%
7.50%
5.00
Other Services
0.5
0.3
Total Assets
5.00%
5.00
95.00
6. First National Bank of Conway is considering installing two ATMs in its Southside
branch. The new machines are expected to cost $37,000 apiece. Installation costs
will amount to about $15,000 per machine. Each machine has a projected useful life
of 10 years. Due to rapid growth in the Southside district, these two machines are
expected to handle 50,000 cash transactions per year. On average, each cash transac-
tion is expected to save 30 cents in teller expenses. If First National has a 10 percent
cost of capital, should the bank proceed with this investment project?
Chapter 11 Solutions
Survey Of Accounting
Ch. 11 - 1.Define fixed cost and variable cost and give an...Ch. 11 - Prob. 2QCh. 11 - 3.Define the term operating leverage and explain...Ch. 11 - Prob. 4QCh. 11 - Prob. 5QCh. 11 - 6.If volume is increasing, would a company benefit...Ch. 11 - Explain the risk and rewards to a company that...Ch. 11 - 9.Are companies with predominately fixed cost...Ch. 11 - 10.How is the relevant range of activity related...Ch. 11 - Which cost structure has the greater risk?...
Ch. 11 - 14.The president of Bright Corporation tells you...Ch. 11 - Prob. 12QCh. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - Prob. 17QCh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Exercise 2-4A Determining total variable cost The...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prepare an income statement using the contribution...Ch. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Problem 2-19A Context-sensitive nature of cost...Ch. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 27PCh. 11 - Prob. 28PCh. 11 - Prob. 29PCh. 11 - Prob. 1ATCCh. 11 - Prob. 2ATCCh. 11 - Prob. 3ATCCh. 11 - Prob. 4ATCCh. 11 - Prob. 5ATC
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