EXERCISE 7–7 First-Stage Allocations [LO2]
The operations vice president of First Bank of Eagle, Kristin Wu, has been interested in investigat- ing 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 vari- ous 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. Ms. Wu 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 cost of processing deposits and withdrawals, and the cost of processing other customer transactions.
The Avon branch of First Bank of Eagle has submitted the following cost data for last year:
Virtually all of the other costs of the branch—rent, depreciation, utilities, and so on—are organization-sustaining costs that cannot be meaningfully assigned to individual customer transac- tions such as depositing checks.
In addition to the cost data above, the employees of the Avon branch have been interviewed concerning how their time was distributed last year across the activities included in the activity- based costing study. The results of those interviews appear below:
Prepare the first-stage allocation for Ms. Wu as illustrated in Exhibit 7–5.
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