Cost Management

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Introduction: Our case study is on the Columbia City Bank. First of all we would like to talk about the general inner workings of a bank. A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services. Lending activities, however, still provide the bulk of a commercial bank's income. Beside, Banks make money from card products through interest payments and fees…show more content…
A drastic action would be to shut down its business customer line altogether as it is turning into a liability. Though this is not recommended as such, instead the bank should find ways to cut the costs of operating the business line. 2. Signs that Columbia City Bank’s original cost system was broken and in need of refinement is that it showed that its profit continued to decline even though 80% of the branch managers met the targeted increase in the number of customers. Another sign is that the numbers of business customers reduced in proportion to retail customers. In other words business customers who contribute a lot of capital were leaving the bank for certain reasons whereas at the same time retail customers continued to increase in numbers. 3A) Check payments: activity rate for it is the number of checks processed Retail customers: 2280 000 Business customers: 9120 000 Total number of checks processed: 11 400 000 Check payment costs: Activity: salaries of check-processing personnel = RM 440 000 Depreciation on check –processing equipment = RM 9120 000 Total number of checks processed = RM 1140 000 Allocation rate for check payments: Total check payment costs/ total number of checks processed RM 1140 000/11400 000 = RM0.10 per check processed Teller withdrawals and deposits, activity rate is number of teller transactions Retail customers: 320

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