Buckeye National Bank
1. a) PDOR- Est. MOH/Est. Act. (Total indirect costs/total value of checks processed)
$2,850,000/$95,000,000= $0.03 per dollar processed.
b) (i) Retail Line—(Value of checks processed X cost per dollar processed)
$9,500,000 X $0.03= $285,000 (ii) Business Line $85,500,000 X $0.03= $2,565,000 The allocations are driven by the dollar value of the checks processed. c) (i) Total indirect cost proportion for Retail Line (Allocation amount/Est. MOH) $285,000/$2,850,000= 10% (ii) Total indirect cost proportion for Business line $2,565,000/$2,850,000= 90% The original system assumed that indirect costs are incurred in direct proportion to the dollar value of the checks processed. This
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9. One, they should apply the ABC system because it uses 3 PDORs instead of using the old costing system which only uses 1 PDOR. Doing this more accurately allocates the indirect costs per account. Two, they should restructure the retail line costs in order to make a profit. Meanwhile they should focus on the Business line by providing the bonus-based incentive to only the business accounts. 10. ABC data can help Buckeye National Bank's managers develop more effective marketing strategies by more accurately pricing their services and assessing the profitability of different mixes of customers and services. Managers can also use ABC data to pinpoint opportunities to improve their services. The managers could train the customer account representatives to take more calls per hour on account inquiries, which would lower the cost of an individual account inquiry. Use of ATMs would cut down on the cost of teller transactions. They could also look into purchasing a more efficient check processing system that would cut down on the time and cost of processing checks. 11. Erik