Buckeye National Bank Essay

1012 Words Feb 29th, 2012 5 Pages
1. Under the original (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.
2850 / 95000 = $0.03

b. Use your answer to part A to determine the total annual indirect cost assigned to: i. The retail customer line, and
9500 * 0.03 = $285

ii. The business customer line. What drives theses allocations?
85500 * 0.03 = $2565 Paying checks which was processed

c. What proportion of the total indirect cost is assigned to: iii. The retail customer line, and iv. The business customer line? Why? That is, what is the underlying rationale for indirect cost allocation under the old
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2. What are the signs that Buckeye’s original cost system is “broken,” such that it needs refinement on improvement?
Although the company made strategy through original cost system, it is still unclear why the profit was declining. Might be some problem when the company was allocating the cost on both lines, and the methods to allocate will route a wrong strategy for the company.

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

f. Paying checks:
$700 +$440 = $1140
$1140 / 2850 = $0.4 per check processed

g. Providing teller services: $1000 + 200 = $1200
$1200 / 200 = $6 per teller

h. Responding to customer account inquiries: $450 + $60 = 510
$510 / 100 = $5.1 per call

4. Use the following schedule to compute the total indirect cost allocated to each customer line (show your computations beside the activity description)

Activity | Total Indirect Cost Assigned to Retail Customer Line | Total Indirect Cost Assigned to Business Customer Line | Paying Checks | 0.4*570 = 228 | 0.4*2280 = 912 | Providing Teller Services | 6*160= 960 | 6*40 = 240 | Responding to customer account inquiries | 95*5.1=484.5 | 5.1*5 = 25.5 | Total Indirect Cost | $1672.5 | =1177.5 |

5. What proportion of each activity is attributable to: i. The retail customer line, and j. The business

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