Golding Bank is in the process of implementing an activity-based costing system. A copy of an interview with the manager of Golding's Credit Card Department follows: QUESTION I: How many employees are in your department? RESPONSE: There are eight employees, including me. QUESTION 2: What do they do (please describe)? RESPONSE: There are four major activities: supervising employees, processing credit card transactions, issuing customer statements, and answering customer questions. QUESTION 3: Do customers outside your department use any equipment? RESPONSE: Yes. Automatic bank tellers service customers who require cash advances. QUESTION 4: What resources are used by each activity (equipment, materials, energy)? RESPONSE: We each have our own computer, printer, and desk. Paper and other supplies are needed to operate the printers. Of course, we each have a telephone as well. QUESTION 5: What are the outputs of each activity? RESPONSE: Well, for supervising, I manage employees' needs and try to ensure that they carry at their activities efficiently. Processing transactions produces a posting for each transaction in t computer system and serves as a source for preparing the monthly statements. The number of monthly customer statements has to be the product for the issuing activity, and I suppose that the number of customers served is the output for the answering activity. And I guess that the number of cash advances would measure the product of the automatic teller activity, although be teller really generates more transactions for other products such as checking and savings accounts. So, perhaps the number of teller transactions is the real output. QUESTION 6: Who or what uses the activity output? RESPONSE: We have three products: classic, gold, and platinum credit cards. Transactions are processed for these three types of cards, and statements are sent to clients holding these cards. Similarly, answers to questions are all directed to clients who hold these cards. As far as supervising, I spend time ensuring the proper coordination and execution of all activities except for the automatic teller. I really have no role in managing that particular activity. QUESTION 7: How much time do workers spend on each activity? By equipment? RESPONSE: I just completed a work survey and have the percentage of time calculated for each worker. All seven clerks work on each of the three departmental activities. About 40 per cent of their time is spent processing transactions, with the rest of their time split evenly between issuing statements and answering questions. Phone time for all seven workers is used only for answering client questions. Computer time is 70 percent transaction processing, 20 percent statement preparation, and 10 percent question answering. Furthermore, my own time and that of my computer and telephone are 100 percent administrative. Credit card transactions represent about 20 percent of the total automatic teller transactions. Required: Prepare an activity dictionary using five columns: activity name, activity description, activity type (primary or secondary), cost object(s), and activity driver.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Golding Bank is in the process of implementing an activity-based costing system. A copy of an interview with the manager of Golding's Credit Card Department follows:
QUESTION I: How many employees are in your department?
RESPONSE: There are eight employees, including me.
QUESTION 2: What do they do (please describe)?
RESPONSE: There are four major activities: supervising employees, processing credit card transactions, issuing customer statements, and answering customer questions.
QUESTION 3: Do customers outside your department use any equipment?
RESPONSE: Yes. Automatic bank tellers service customers who require cash advances.
QUESTION 4: What resources are used by each activity (equipment, materials, energy)?
RESPONSE: We each have our own computer, printer, and desk. Paper and other supplies are needed to operate the printers. Of course, we each have a telephone as well.
QUESTION 5: What are the outputs of each activity?
RESPONSE: Well, for supervising, I manage employees' needs and try to ensure that they carry at their activities efficiently. Processing
QUESTION 6: Who or what uses the activity output?
RESPONSE: We have three products: classic, gold, and platinum credit cards. Transactions are processed for these three types of cards, and statements are sent to clients holding these cards. Similarly, answers to questions are all directed to clients who hold these cards. As far as supervising, I spend time ensuring the proper coordination and execution of all activities except for the automatic teller. I really have no role in managing that particular activity.
QUESTION 7: How much time do workers spend on each activity? By equipment?
RESPONSE: I just completed a work survey and have the percentage of time calculated for each worker. All seven clerks work on each of the three departmental activities. About 40 per cent of their time is spent processing transactions, with the rest of their time split evenly between issuing statements and answering questions. Phone time for all seven workers is used only for answering client questions. Computer time is 70 percent transaction processing, 20 percent statement preparation, and 10 percent question answering. Furthermore, my own time and that of my computer and telephone are 100 percent administrative. Credit card transactions represent about 20 percent of the total automatic teller transactions.
Required: Prepare an activity dictionary using five columns: activity name, activity description, activity type (primary or secondary), cost object(s), and activity driver.
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