Buckeye National Bank

1020 words 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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Using the ABC data from Requirement 4, compute k. The indirect cost per retail customer account and l. The indirect cost per business customer account
Retail: 1672.5 / 150 = $11.15
Business: 1177.5/ 50 = $23.55

7. Explain why the results in Requirement 1, Part D, and Requirement 6 differ. Be specific.
Requirement 1 used paying checks to allocate indirect cost only. Didn’t consider the cost generated from other costs, which included teller transaction and account inquiry calls.

8. Using the ABC data, compute the average contribution to profit per account for both retail and business customers. What business strategy would be a manager using the ABC cost system likely adopt? How does this result compare to your response to Requirement 1, Part E?
New method old method
Retail: $10 – $11.15 = ($1.15) 8.1
Business: $40 - $23.55 = 16.45 (11.3)
Expand the business with business line instead of increasing retail bases.

9. Recall Buckeye National Bank’s bonus-based incentive plan to increase the number of customers. Do you believe this strategy is wise? Would you suggest any change in strategy based on the ABC analysis?
No, it isn’t.
Get rid of the call center. Make an incentive plan for mangers in order to attract the more local business line.

10. Activity-based management (ABM) refers to managers’ use of ABC data in making business decisions. How can Buckeye’s managers use the ABC data to plan more