Exercise 7-8 Computing and Interpreting Activity Rates [LO7-3] The operations vi

Question

Exercise 7-8 Computing and Interpreting Activity Rates [LO7-3] 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 $ 160,000 Assistant branch manager salary 75,000 Branch manager salary 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 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 Opening Accounts Processing Deposits and Withdrawals Processing Other Customer Transactions Other Activities Totals Teller wages 5 % 65 % 20 % 10 % 100 % Assistant branch manager salary 15 % 5 % 30 % 50 % 100 % Branch manager salary 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 Total Activity at the Westfield Branch Opening accounts 500 new accounts opened Processing deposits and withdrawals 100,000 deposits and withdrawals processed Processing other customer transactions 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.)

Explanation / Answer

Answer Activities Designation Salary Opening Account Deposits Withdrawals Other Total Teller Wages 160000 8000 104000 32000 16000 160000 Asst BR Manager 75000 11250 3750 22500 37500 75000 Branch Manager 80000 4000 0 8000 68000 80000 Total 315000 23250 107750 62500 121500 315000 No. of Activities 500 100000 100000 5000 Activity rate                 46.50        1.08            0.63      24.30

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