Buckeye National Bank

1150 Words Apr 12th, 2015 5 Pages
Buckeye National Bank
1. Under the traditional (old) cost system:
a. Compute the single indirect cost allocation rate that the bank would use to allocate the total indirect costs presented in Exhibit B. (Total indirect costs/total value of checks processed, in thousands)
$2,850 / $95,000 = $0.03
b. Use your answer to part A to determine the total annual indirect cost assigned to:
i. The retail customer line (Value of checks processed X cost per dollar processed, in thousands), and
$9,500 * $0.03 = $285 ii. The business customer line. (Value of checks processed X cost per dollar processed, in thousands). What drives theses allocations?
$85,500 * $0.03 = $2,565 The allocations are driven by the checks processed.
c. What proportion of the
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What proportion of each activity is attributable to:
i. The retail customer line, and ii. The business customer line?
Paying Checks Teller Services Account Inquiries
Retail 20% 80% 95%
Business 80% 20% 5%
6. Using the ABC data from Requirement 4, compute
k. The indirect cost per retail customer account and
l. The indirect cost per business customer account
Retail: $1,672.50 / $150 = $11.15
Business: $1,177.50 / 50 = $23.55
7. Explain why the results in Requirement 1, Part D, and Requirement 6 differ. Be specific.
Requirement 1, Part D used paying checks to allocate indirect cost only. It did not consider the cost generated from other costs, which included teller transactions and account inquiry calls.
8. Using the ABC data, compute the average contribution to profit per account for both retail and business customers. What business strategy would be a manager using the ABC cost system likely adopt? How does this result compare to your response to Requirement 1, Part E?
Retail: $10 – $11.15 = ($1.15) 8.1
Business: $40 - $23.55 = 16.45 (11.3)
Expand the business with business line instead of increasing retail bases.
9. Recall Buckeye National Bank’s bonus-based incentive plan to increase the number of customers. Do you believe this strategy is wise? Would you

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