The Neighborhood Bank has gathered data related to its customers for a pilot project at one of its branches. The ABC team has identified three main product lines: regular account holders, loans, and investments (certificates of deposit, retirement investments, and so on). The team initially identified the following support activities: process transactions related to customer accounts, process applications for loans and for investments, answer customer inquiries, and balance customer accounts. The following data regarding activities are provided:

a. Express the calculation of total support activity cost as a linear equation.

b. If a long-time high-account-balance customer uses the following monthly quantity of activities, determine the support costs for this type of customer: 15 transactions, 2 applications, 7 inquiries, and 4 accounts.

c. If instead the bank allocated its support costs by the number of accounts held, what cost would be assigned to this high-account-balance customer?

d. Compare the answers in (b) and (c). What are the advantages and disadvantages of the approach in (b) versus those of the approach in (c)?

e. Evaluate each of the following suggestions made to the ABC team:

i. Use the time spent on each activity instead of the number of transactions to allocate support costs.
ii. Separate the processing of online banking accounts from the processing of on-site banking and robotics process automation (RPA) as different activity cost pools and cost objects.

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Support Activity Process transactions Process applications Answer inquiries Balance accounts Total Estimated Cost Activity Cost Driver $50,000 Number of transactions $24,000 Number of applications $18,000 Number of inquiries $9,000 Number of accounts $101,000 Budgeted Level Rate 30,000 $1.67 4,000 $6.00 36,000 $0.50 3,000 $3.00