Baller Financial is a banking services company that offers many different types

Question

Baller Financial is a banking services company that offers many different types of checking accounts. The bank has recently adopted an activity-based costing system to assign costs to their various types of checking accounts. The following data relate to the money market checking accounts, one of the popular checking accounts, and the ABC cost pools: Annual number of accounts = 56,000 accounts. Checking account pools:

Cost Pool Cost Cost Driver Returned check cost $2,830,000 # of returned checks Checking acct recon cost $53,000 # of acct recon requests new account set up $635,000 # of new accounts copies of cancelled checks $391,000 # of cancelled check copy requests Online banking website maintenance $189,000 per product group (type of account)

Annual activity information related to cost drivers: Cost Pool All Products Money Market Checking returned checks 191,000 returned checks 18,000

check reconcilliation 391,000 checking account 420

new accounts 56,000 new accounts 15,000

cancelled check copy request 93, 000 cancelled checks 60,000

website cost 9 types of account 1

Calculate the overhead cost per account for the Money Market Checking?

Explanation / Answer

Calculation of activity cost driver rate Returned check cost per check = Annual Returned check cost / no.of returned checks = $28,30,000 / 191000 = $14.82 per returned check Checking account reco cost per account = Annual checking account reco cost / no.of check reconciliation = $53000 / 391000 = $0.14 per account reco request Account set up cost per account = Annual account set up cost / no.of new accounts = $635000 / 56000 = $11.34 per new account Cost of cospies of cancelled check per request = Annual cost of copies of cancelled check / no.of cancelled check copy request = $391000 / 93000 = $4.20 per request Online banking website maintenance cost per type of account = Annual Online banking website maintenance cost / no.of types of account = $189000 / 9 = $21000 per type of account Calculation of overhead cost per account of Money market checking Activity rate No.of activity Cost Returned check cost $14.82 18000 $2,66,760.00 Checking acct recon cost $0.14 420 $58.80 new account set up cost $11.34 15000 $1,70,100.00 copies of cancelled checks cost $4.20 60000 $2,52,000.00 Online banking website maintenance $21,000.00 1 $21,000.00 Total cost $7,09,918.80 No.of new accounts 15000 Overhead cost per account of Money market checking $47.33

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