EXERCISE 7-8 Computing and Interpreting Activity Rates [LO7-3] (This exercise is a continuation of Exercise 7–7; it should be assigned only if Exercise 7-7 is also assigned.) The manager of the Westfield branch of Security Home Bank has provided the follow- ing data concerning the transactions of the branch during the past year: Total Activity at the Westfield Branch Activity Opening accounts ......... Processing deposits and withdrawals ..... Processing other customer transactions ... 500 new accounts opened 100,000 deposits and withdrawals processed 5,000 other customer transactions processed The lowest costs reported by other branches for these activities are displayed below: Lowest Cost among All Security Home Bank Branches Activity Opening accounts ..................... Processing deposits and withdrawals ...... Processing other customer transactions .... $26.75 per new account $1.24 per deposit or withdrawal $11.86 per other customer transaction Required: 1. Using the first-stage allocation from Exercise 7-7 and the above data, compute the activity rates for the activity-based costing system. (Use Exhibit 7-7 as a guide.) Round all computa- tions to the nearest whole cent. 2. What do these results suggest to you concerning operations at the Westfield branch?
Related questions
The operations vice president of Security Home Bank has beeninterested in investigating the efficiency of the bankâsoperations. She has been particularly concerned about the costs ofhandling routine transactions at the bank and would like to comparethese costs at the bankâs various branches. If the branches withthe most efficient operations can be identified, their methods canbe studied and then replicated elsewhere. While the bank maintainsmeticulous records of wages and other costs, there has been noattempt thus far to show how those costs are related to the variousservices provided by the bank. The operations vice president hasasked your help in conducting an activity-based costing study ofbank operations. In particular, she would like to know the cost ofopening an account, the cost of processing deposits andwithdrawals, and the cost of processing other customertransactions. |
| The Westfield branch of Security HomeBank has submitted the following cost data for last year: |
| Teller wages | $ | 160,000 |
| Assistant branchmanager salary | 75,000 | |
| Branch managersalary | 80,000 | |
| Total | $ | 315,000 |
Virtually all other costs of thebranchârent, depreciation, utilities, and so onâareorganization-sustaining costs that cannot be meaningfully assignedto individual customer transactions such as depositing checks. |
In addition to the cost dataabove, the employees of the Westfield branch have been interviewedconcerning how their time was distributed last year across theactivities included in the activity based costing study. Theresults of those interviews appear below: |
| Distribution of Resource Consumption AcrossActivities | |||||||||||
| Opening Accounts | Processing Deposits and Withdrawals | ProcessingOther Customer Transactions | OtherActivities | Totals | |||||||
| Teller wages | 5 | % | 65 | % | 20 | % | 10 | % | 100 | % | |
| Assistant branchmanager salary | 15 | % | 5 | % | 30 | % | 50 | % | 100 | % | |
| Branch managersalary | 5 | % | 0 | % | 10 | % | 85 | % | 100 | % | |
The manager of the Westfield branch of Security Home Bank hasprovided the following data concerning the transactions of thebranch during the past year: |
| Activity | Total Activity at the Westfield Branch | |
| Openingaccounts | 500 | new accounts opened |
| Processing depositsand withdrawals | 100,000 | deposits and withdrawalsprocessed |
| Processing othercustomer transactions | 5,000 | other customer transactionsprocessed |
| Required: | |
| 1. | Compute the activity rates for the activity-based costingsystem. (Round your answers to 2 decimalplaces.) |
| Required: |
| Prepare the first-stage allocation for the activity-based costing study. |
The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bankâs 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 bankâs 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 branchârent, depreciation, utilities, and so onâare 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 | % | |
