ACElVlEy-based Uostmg m the Service Sector: The Buckeye National Bank Linda Smith Bamber and K. E. Hughes II ABSTRACT: The US. Bureau of the Census projects that by 2006. the service sector will employ 74 percent of the workforce. This case illustrates why a major segment of the service sectorbanksqreeds accurate cost information to make strategic decisions. and how more refined accounting systems help fulfill this need. Buckeye National Bank is a hypothetical bank that has suffered falling profits despite a shift in customer base toward retail customers, which the current informa- tion system reports are more profitable than business customers. Following a step- by-step approach. you will develop the Bank's average cost of serving a retail cus- tomer account and a business customer account. under (1) the Bank's traditional single allocation base system. and (2) a (pilot test) activity-based costing system. You will analyze these results to determine how and why costs reported by the activity-based system differ from the costs reported by the traditional system. and what this difference means for the Bank's business strategy. Finally. you will con- sider how the Bank's managers can use the new, more refined activity-based cost data in strategic decision making. Including controlling costs and developing more protable business strategies. INTRODUCTION e Buckeye National Bank began operations in the mid-1980s. The bank quickly grew by providing checking account services to many small busi- nesses that preferred to do business with a \"local\" bank. Although Buckeye initially offered checking account services for individual accounts (retail custom- ers), the bank primarily focused on serving its business customers. During the economic slowdown of the early 19905 that weakened the local economy, growth