Case East Penn Bank Essays

2499 Words Mar 6th, 2015 10 Pages
Activity-Based Costing in the
Service Sector:
The East Penn Bank
ABSTRACT: This case illustrates why a major segment of the service sector banks - needs accurate cost information to make strategic decisions, and how more refined accounting systems help fulfill this need.
East Penn Bank is a hypothetical bank that has suffered falling profits despite a shift in customer base toward retail customers, which the current information system reports are more profitable than business customers. Following a stepby-step approach, you will develop the Bank’s average cost of serving a retail customer account and a business customer account, under (1) the Bank’s traditional single allocation base system, and (2) a (pilot test) activity-based costing
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The bank’s primary income is from interest-bearing checking accounts. Noninterest income includes fees charged for various services, such as checking account fees charged if the account balance falls below the required minimum level. Noninterest expenses are all of the bank’s operating costs, including those associated with paying checks, providing teller services, and responding to customer account inquires.

center. The team began by identifying the activities East Penn Bank performed.
To start a simple pilot study, the team identified the three most important activities: 1. Paying checks
2. Providing teller services
3. Responding to customer account inquiries at the customer service call center
If this pilot study turned out to be successful, then the team planned to refine the system by conducting a more detailed activity analysis the following year.
The ABC team began by determining the costs that are associated with each of the three

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