Deriquito, Angelica Fe Lira

MBA 202 Managerial Accounting

Activity-Based Costing and Management

Case 1. The operations vice president of Security Bank has been interested in investigating the
efficiency of the bank’s 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 bank’s 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 costs of processing deposits and withdrawals, and the cost of processing
other customer transactions.

The Cubao Branch of Security Bank has submitted the following cost data for last year:

Teller wages P1,600,000

Asst. Branch Manager salary 750,000
Branch manager salary 800,000
Total P3,150,000

Virtually all other costs of the branch – rent, depreciation, utilities, and so on- are 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 Cubao branch have been interviewed
concerning how their time was distributed last year across the activities included in the activity-
costing study. The results of those interviews appear below:

Distribution of Resource Consumption Across Activities

Processing Processing
Deposits Other
Opening and customer Other
accounts withdrawals transactions Activities Total
Teller wages 5% 65% 20% 10% 100%
Asst. Branch manager 15% 5% 30% 50% 100%
salary
Branch Manager salary 5% 0% 10% 85% 100%

Required: Prepare a 1st stage allocation for the activity costing study

Answers:

1st Option:

1. Teller Wages – P 1,600,000

Opening Accounts (5%) P 80,000
Processing Deposits and Withdrawals (65%) P1,040,000
Processing other customer transactions (20%) P 320,000
 Other Activities (10%) P 160,000
Total (100%) P 1,600,000

2. Asst. Branch manager salary – P 750,000

Opening Accounts (15%) P 112,500
Processing Deposits and Withdrawals (5%) P 37,500
Processing other customer transactions (30%) P 225,000
Other Activities (50%) P 375,000
Total (100%) P 750,000

3. Branch Manager salary – P 800,000

Opening Accounts (5%) P 40,000
Processing Deposits and Withdrawals (0%) P 0
Processing other customer transactions (10%) P 80,000
Other Activities (85%) P 680,000
Total (100%) P 800,000

2nd Option: (Same results but for easy viewing and to show the total per activity)

Distribution of Resource Consumption Across Activities

Processing Processing
Deposits Other
Opening and customer Other
accounts withdrawals transactions Activities Total
Teller wages 80,000 1,040,000 320,000 160,000 1,600,000
Asst. Branch manager 112,500 37,500 225,000 375,000 750,000
salary
Branch Manager salary 40,000 0 80,000 680,000 800,000
Total 232,500 1,077,500 625,000 1,215,000 3,150,000