2.3(10 marks) Activity Based Costing- Chapter 7

EasyCredit Financial is a banking services company that offers many different types of chequing accounts. It has recently adopted an activity-based costing (ABC) system to assign costs to various types of chequing accounts. The following data relate to one type of chequing account, the "money market" chequing account, and the ABC cost pools:

Total number of chequing accounts: 221,750

Number of "money market" chequing accounts: 70,000

Chequeing Account Cost Pools

Cost Pool	Cost	Cost Driver
Returned cheque costs	$3,000,000	Number of returned cheques
Chequing account reconciliation costs	60,000	Number of account reconciliation requests
New account setup	780,000	Number of new accounts
Photocopies of cancelled cheques	300,000	Number of cancelled cheque copy requests
Web site maintenance (online banking)	225,000	Per product group (type of chequing account)
Total Chequing account costs	$4,365,000

Annual activity information related to cost drivers

Cost Pool	All Products	Money Market Chequing
Returned cheque costs	200,000 returned cheques	18,000
Cheque reconciliation costs	3,000 chequing account reconciliations	420
New accounts	60,000 new accounts	20,0000
Cancelled cheque photocopies requests	80,000 cancelled cheque photocopy requests	50,000
Web site costs	10 types of chequing accounts	1

Required:

1. Calculate the cost rate per cost driver activity for each of the five cost pools. Round to the nearest dollar.

1. Calculate the total cost assigned to the "Money Market" chequing account. Round to the nearest dollar.

1. Suppose that EasyCredit Financial allocates overhead using the number of chequing accounts as the allocation base and one cost pool.Determine the cost rate per chequing account and the per account cost assigned to the "Money Market" chequing account. Explain in detail the difference in cost allocations between this method and the ABC approach.