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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

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.

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