First Eastern Bank is a large, multibranch bank offering a wide variety of comme
ID: 2346832 • Letter: F
Question
First Eastern Bank is a large, multibranch bank offering a wide variety of commercial and retail banking services. Eastern uses an absorption costing system to monitor the costs of various services and provide information for a variety of decisions.One set of services is a retail loan operation providing residential mortgages, car loans, and student college loans. All loan applications are filed by the applicant at a branch bank, where the branch manager fills out the loan application. From there, the loan application is sent to the loan processing department, where the applicant's credit history is checked and a recommendation is made regarding loan approval based on the applicant's credit history and current financial situation. This recommendation is forwarded to the loan committee of senior lending officers, who review the file and make a final decision.
Thus, there are three stages to making a loan: application in a branch, the loan processing department, and the loan committee. Mr. and Mrs. Jones visit the West Street branch and file an application for a residential mortgage. The Jones's loan application is processed through the three stages.
Explanation / Answer
a. Calculate the cost per hour for the branch. =(259000 + 42600 / 2080 * 1080 ) / 2080 = 281,119 / 2080 =135.15 / hour b. Calculate the cost per hour for processing the Joneses’ mortgage. 800,000 budget / 40,000 hours = 20 per hour 5 hours processing time x 20 = 100 / hour c. Calculate the total cost of approving (loan committee) the Joneses’ 104,000 per member x 10 members / 52 * 8 (52 meetings of 8 hours) =2500 per hour 0.25 hours used to evaluate * 2500 = 625 hour
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