Activity-Based Costing: Service Firm Glencoe First National Bank operated for years under the assumption that profitability can be increased by increasing dollar volumes. Historically, First National's efforts were directed toward increasing totl dollars of sales and total dollars of account balances. In recent years, however, First National's profits have been eroding. Increased competition, particularly from savings and loan institutions, was the cause of the difficulties. As key managers discussed the bank's problems, it became apparent that they had no idea what their products were costing. Upon reflection, they realized that they had often made decisions to offer a new product which promised to increase dollar balances without any consideration of what it cost to provide the service. After some discussion, the bank decided to hire a consultant to compute the costs of three products: checking accounts, personal loans, and the gold VISA. The consultant identified the following activities, costs, and activity drivers (annual data): Activity Providing ATM Activity Cost Activity Driver Activity Capacity $ 100,000 No. of transactions 200,000 service Computer processing Issuing statements 1,000,000 800,000 No. of transactions 2,500,000 No. of statements 500,000 Customer inquiries 360,000 Telephone minutes 600,000 The following annual information on the three products was also made available: Checking Accounts Personal Loans Gold VISA Units of product 30,000 5,000 10,000 ATM transactions 180,000 0 20,000 Computer transactions 2,000,000 200,000 300,000 Number of statements 300,000 50,000 150,000